Why oil prices can’t rise very high, for very long

Oil prices are now as high as they have been for three years. At this writing, Brent is $74.14 per barrel and West Texas Intermediate is at $68.76. These prices aren’t really very high, if a person looks at the situation from a longer term point of view than the last three years.

Figure 1. EIA chart of weekly average Brent oil prices, through April 13, 2018.

There is always a question of how high oil prices can go, and for how long.

In fact, we have many resources, of many kinds, whose prices of extraction keep rising higher. For example, obtaining fresh water for the world’s population keeps getting more and more expensive. Some parts of the world need to resort to desalination.

The world economy cannot withstand high prices for any of these resources for very long. Certainly, it cannot withstand high prices for a combination of necessary resources, because people need to cut back on other purchases, in order to afford the necessities whose prices are rising. This article is a guest post by another actuary, who goes by the pseudonym Shunyata. He explains in a different way why high resource prices cannot last, whether they are for oil, or natural gas, water, or even fresh air.

Dear Readers:

As you are no doubt aware, Gail has created a fantastic portfolio of blogs that explore our energy/financial/economic system, blogs that reveal many hidden or misunderstood aspects of our situation. I have found these discussions invaluable and share them wherever I am able; to solve our societal problems we need to develop a societal understanding of these issues.

The problem I face is helping other people, like my grandparents, get a foothold in this complex discussion. They can understand why oil might “run out,” but trying to understand the problematic financial situation is more difficult. I like metaphors to explain things – metaphors that allow my grandparents to understand the major elements of the situation. The metaphors I am using are to the oil industry. My grandparents have been following the oil situation for a long time. If a person has been following the oil industry, they may be helpful.

Below you will see how I explain Gail’s detailed writing to my grandparents in three short chapters. I hope you find this outline helpful in your own discussions, and I welcome your suggestions for improving the transparency of the story.


What if air had to be produced from wells and purchased by businesses and families to conduct their normal affairs?

If air is readily available in the ground, we can always extract what we need, making it easy for businesses and families to operate, or even to grow.

What happens if air becomes harder to extract? Perhaps the easy air is gone and we are increasingly looking at extracting deep water air, or air dissolved in shale stone.

Technology may be able to help; sometimes it can help a lot. But there is an immediate production cost shock in funding the development of that technology. This cost shock occurs whether we are talking about conventional air or solar-based renewable air.

There is a lower but permanent increase in production cost, both to fund the complexity of the technology (a deep water air rig just costs more to operate than a land rig) and to pay off any debt needed to build the new technological infrastructure. This cost increase occurs whether we are talking about conventional air or solar-based renewable air.

This cost increase is a permanent drag on the economy. Wages don’t rise to compensate for the higher cost of air. There is no substitute for air, and air simply isn’t available in the quantities the economy previously enjoyed – unless we stop doing things that we were doing before and redirect those resources toward producing the same amount of air we used to have.


In a modern financial system, we use “money” as a proxy for economic activity. In a barter system, I can obtain goods and services by trading my work product for your work product. But carting around packages of finished goods is unwieldy, so we use “money” as a medium of exchange. If you and I are both willing to trade our finished goods for a symbolic piece of paper, then I can trade my goods and services for paper, bring that paper to you and trade it for your goods and services. This medium of exchange makes it easy to trade complex goods and services over long distances, or at different points in time.

How would lending work in this barter system? Someone could produce many finished goods, trade it for symbolic paper, but not immediately trade it for other goods, and “save” their paper for later. Debt is a process of borrowing someone else’s saved symbolic paper to purchase goods and services for themselves. This is helpful when I need to build a deep water air rig but don’t have the money myself. I can borrow someone else’s money and pay them back later, after my rig is bringing in revenue.

This simple borrowing process only works if some people aren’t consuming goods and services in the economy, and are instead allowing others to “borrow” their ability to consume. What if there isn’t enough saving to make large borrowing possible? What if I want to maximize economic activity and don’t want people to defer their own individual consumption?

If we want more funding than barter can provide, this can be done in more than one way:

[a] Money can be loaned into existence. This happens every day, when people decide to buy a car, and take out a loan for that purpose. Or people buy something with a credit card, and decide to carry a balance, rather than pay it off immediately. Nearly all loans today represent new money to the system.

[b] Governments can also obtain money by issuing bonds. Or they can simply issue money certificates without having any backing for the money.

Let’s call the process of adding funding to the economy, over and above what would be available by debt, “money printing.” In each of these cases, symbolic paper is added to the economy without previous work having been performed.

[1] Money printing can be helpful when it represents an investment in growing the overall economy. Investment in deep water air rigs will make air more available in the economy and will spur an expansion of economic activity. In this case the goods and services in the economy eventually “grow into” the amount of money that has been printed and the extra economic activity in the future is used to repay the debt.

[2] Money printing is unhelpful when it simply becomes someone’s savings (i.e. growing wealth inequality). The economy is still obligated to repay the debt (usually through taxes) and economic activity becomes sequestered in wealthy people’s savings, without ever creating demand for someone else’s product.

[3] Money printing is also unhelpful when it is used to fund more air consumption without any investment in air production. For example, a family that borrows money for an air vacation (or for basic daily air subsistence):

  • Now has a debt–repayment of which will reduce future air consumption
  • Has created no permanent demand for air and does not require permanently expanding air production for the economy–so their vacation air demand tends to increase the cost of air for all other consumers.

What happens when we put these two chapters together? When air becomes more difficult to extract:

[1] Production cost goes up permanently.

[2] Economic activity is redirected to maintain air production, and overall economic activity is reduced. With reduced overall economic activity there is a reduced need for air, resulting in excess air supply and a temporary reduction in air price.

[3] If air consumers spend their available money on air and defer other purchases, there is an additional reduction in economic activity, additional excess supply and further reduction in air price.

[4] Reduced price means less revenue to air producers.

[5] Owners of idled air rigs still have debts to pay (money borrowed to build air rig in the first place). They are willing to undercut the market price of air just to get revenue to pay their debts, even if they aren’t making a profit otherwise. This drives the price even lower.

So air prices fall, even though the cost of air production continues to rise.

This begins to look like an economic crisis. A natural response of governments is to print money so that consumers have more money available to purchase air, without deferring other purchases.

This can work for a while, but ultimately fails when there is no overall growth in economic activity to match the increased money supply. The debt comes due (usually in the form of higher taxes). There isn’t enough productive activity in the economy to easily pay back the debt. As a result, consumers must defer even more of their consumption to repay debt, ultimately resulting in even lower air prices.

Eventually either the debt market or air market runs the risk of failing entirely.

[1] When economic activity falters, people can no longer repay their debts (or earn enough income to pay taxes toward government debt). Either of these outcomes is bad both for borrowers and lenders.

[2] If economic activity falters, market forces push air producers to a zero-profit price point. At this point, producers have enough money to keep the rigs running and cover debt payments, but no more. Ultimately this cannibalizes the ability of air producers to maintain existing air supplies. They are unable to purchase replacement machines, if any one breaks. They cannot make new investments.

Clearly, this situation cannot continue. High prices cannot be passed on to consumers, or they will be unable to buy other necessities of life. At the same time, if the producers do not get high enough prices, they cannot continue to provide the air or any other commodity that is needed.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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1,703 Responses to Why oil prices can’t rise very high, for very long

  1. Baby Doomer says:

    More than half of states of America lack enough unemployment funding the next recession

    In 2009, mired in the depths of recession, Ohio’s unemployment trust fund went broke, prompting the state to borrow $2.6 billion from the federal government so it could keep sending checks to unemployed workers.

    Now, with the state unemployment rate down to 4.4%, the debt has been repaid and the trust fund has started to rebuild, but not enough to leave Ohio with sufficient funds to manage another economic downturn.

    That challenge exists across the country: Low unemployment has led to a recovery in state unemployment funds, but the recovery is mixed and incomplete. State unemployment trust fund reserves hit $55.2 billion last year, up substantially from $9.5 billion in 2010. Despite the rebound, more than half of U.S. states lack enough unemployment funding to be prepared for another recession, Labor Department data show.

    Economists and policy experts say many states—including powerhouses like New York, California and Texas—are missing an opportunity to rebuild their funding during good economic times. Complicating their outlook, the federal government may not be in a strong position to help the next time the U.S. economy goes south, because federal budget deficits are approaching $1 trillion.

    “Given how robust the recovery has been, this is a high number of states to not be meeting the recommended federal solvency measure,” said George Wentworth, senior counsel at National Employment Law Project, a group that advocates for the unemployed. “When there is another recession these systems are going to…provide considerably less economic security.”

    For a trust fund to be recession-ready, it must have enough in reserve to pay out benefits at a recession level for a year. As of the beginning of 2018, 24 states and jurisdictions including Washington, D.C. and Puerto Rico exceeded this standard, while 29 states and territories including the Virgin Islands fell below it, according to a Labor Department report.

    By comparison, in 2000, when the national unemployment rate matched today’s 4.1%, 30 states met the solvency standard.

    In the majority of states, trust fund money derives from taxes on employers, with a few states requiring employee contributions. If states run out of funds, the federal government typically provides a backstop.

    State trust funds owed $47 billion to the federal government in 2011, according to a Century Foundation paper by Andrew Stettner. By the end of 2017 their debt had been reduced to about $1 billion.

    To pay back the federal government and recover funding, states have pursued different strategies. Nine states reduced the duration of benefits to fewer than the traditional 26 weeks.

    North Carolina is among those nine. The cuts might have helped to encourage individuals to find work. In the second quarter of 2017, the percentage of workers claiming unemployment benefits was lower in North Carolina than in any other state. The average weekly benefit was $252, 46th in the nation.

    The state’s fund is now big enough to make payouts through a recession, but some policy experts say cutting benefits will come with costs. During a recession, the duration of benefits and average payment could prove insufficient to cover a wide swath of unemployed workers.

    “If there is a tremendous economic downturn, it will not provide the assistance to the families or have a stabilizing role,” said Bill Rowe, deputy director of advocacy at the North Carolina Justice Center, an organization aimed at alleviating poverty.

    States figuring out how to address low funding levels are faced with limited options that often boil down to how much to cut worker benefits or raise employer taxes.

    That debate is still playing out in Ohio.

    For Steve Bruns, president of Ohio-based Bruns General Contracting, part of the legislative solution lies in limiting the length of worker benefits. He hopes the state can bring the fund back to solvency, as taxation scars from the last recession still linger.

    Mr. Bruns’s construction company was paying nearly three times as much in taxes per employee to the state in the wake of the recession, as Ohio paid off debt to the federal government. The firm cut costs on energy, employee perks and building operations as a result of recessionary pressures exacerbated by the extra taxation, he said.

    “We were scrambling trying to figure out how to make ends meet,” Mr. Bruns said. “(The taxation) was just another burden you had to deal with.”

    With others arguing the employer tax is minimal and necessary to save worker benefits, Ohio’s newest legislation proposal—House Bill 382—continues to stall.

    “Everyone recognized the system was not adequately funded but kept kicking the can down the road because no one wanted to do the heavy-lifting to actually fix the problem,” said Don Boyd, director of labor and legal affairs at the Ohio Chamber of Commerce, of the prerecession days.

    “I don’t think we’ve done an adequate job of addressing the issue to try and make sure we have enough in our trust fund to weather the next storm.”

    A spokesman for the Ohio Department of Job and Family Services declined to comment.

    Write to Sarah Chaney at sarah.chaney@wsj.com


  2. Baby Doomer says:

    Oil Is Fast Approaching $70. Is the Economy Ready for It?

    If crude continues to move higher, it could begin to stifle economic growth

    Oil prices are headed toward $70 a barrel, a weight on the U.S. economy that is bearable for now but could pose trouble if prices keep climbing.

    The last time U.S. oil prices were at $70, in 2014, they were in the middle of a steep collapse. Many investors believed then that prices would soon stabilize, or even recover. Instead, they continued to plunge, eventually hitting a bottom in 2016 at $26. That tumble caused acute pain for oil producers, whose troubles rippled out into stocks, bonds and the broader economy.

    This year’s rally is a sign of how much has changed in a few years. Global growth has picked up, while U.S. unemployment has fallen. A gambit by the world’s largest oil producers to cut production has been succeeding in eliminating a massive glut, with help from soaring demand.

    Oil prices have climbed more than 60% since last summer’s lows, and U.S. producers are exporting more crude than ever.

    U.S. crude-oil futures, front-month contract Source: WSJ Market Data Group .a barrel 2014 ’15 ’16 ’17 ’18 20 30 40 50 60 70 80 90 100 110 $120 For now, some investors say oil prices are lodged in a range that could benefit the U.S. economy by bolstering the recovering energy industry without curtailing demand.

    Yet even with the economy chugging along, rising oil prices dredge up fresh concerns. If crude continues to move higher, it could begin to stifle economic growth. Higher consumer prices for gasoline and other energy products act like a tax, while pushing inflation higher and increasing pressure on the Federal Reserve to raise interest rates more aggressively.

    That, in turn, could slow growth and weigh on the stock market, which has already been knocked around by trade tensions, rising bond yields and recent bouts of volatility. Inflation concerns pushed the yield on the 10-year Treasury note to the highest since 2014 on Friday, while major U.S. stock indexes closed lower, wiping out much of the recent gains after a string of upbeat earnings.

    “Nothing can suck cash flow out of the economy faster than rising oil prices,” said Joseph LaVorgna, chief economist for the Americas at Natixis .

    When oil prices fell below $40 a barrel, financial distress from the energy sector started to spread, said Jason Thomas, director of research at the Carlyle Group .

    But if oil prices continue rising, they could boost inflation expectations, which would raise bond yields and the cost of financing.

    “We’re starting to move out of that Goldilocks zone,” Mr. Thomas said. “Certainly $10 to $15 a barrel more there starts to be this drag.”

    President Donald Trump tweeted Friday that oil prices are “artificially Very High!”—a sentiment that would have been unthinkable even a few months ago. Oil prices tumbled after his comment, but recovered to settle at $68.38 a barrel Friday.

    A major force behind rising oil prices has been a policy reversal from the Organization of the Petroleum Exporting Countries. In 2014, the group opted to continue pumping oil at high rates in an effort to protect its market share against encroaching U.S. shale producers. Two years later, OPEC reversed course, enlisting other major producers such as Russia in a coordinated production cut that has helped to nearly eliminate a supply overhang.

    Going, Going, Gone The world’s glut of stored oil has quickly disappeared

    “The conversation is changing,” said Antoine Halff, senior research scholar at Columbia University’s Center on Global Energy Policy. “A year ago the conversation was ‘lower for longer’ and the ‘age of abundance’” for oil, he said. Now, “the idea of cheap oil forever is being challenged.”

    A booming global economy has also been key, keeping demand high as excess oil and fuel gets soaked up by consumers around the world. The first quarter was likely the strongest for global oil demand growth, year over year, since the fourth quarter of 2010, Goldman Sachs said.

    Demand has remained strong even as oil and fuel prices have been rising, and many analysts believe that prices still aren’t high enough to prompt big changes in behavior.

    And with the U.S. now on track to overtake Russia as the world’s largest oil producer, a large swath of the U.S. economy stands to benefit from higher prices. Oil prices are even higher abroad, which has made it lucrative for U.S. producers to ship more crude overseas. Brent, the global benchmark, climbed to $74.06 a barrel Friday.

    “In the past, any time oil prices have gone up it was as a result of supply constraints and the U.S. was at the mercy of foreign oil,” said Joseph Tanious, senior investment strategist at Bessemer Trust. “But U.S. oil production has picked up in a meaningful way—there could be also some benefits to having modestly rising oil prices.”

    Oil’s rise has started to lift energy companies’ share prices, which had been slow to react to higher prices. Oil-and-gas companies have taken over as the U.S. stock market’s priciest segment, according to Credit Suisse analysts. Energy shares have gained 1.5% so far this year after a nearly 10% gain over the past month.

    But even some producers worry about what will happen if higher oil prices stick around too long.

    “We’re going to lose demand. It’s going to move more toward alternative energy,” Scott Sheffield, chairman of Pioneer Natural Resources Co., said at an energy conference last week. “I don’t think it does anybody any good to see $70, $80 crude.”

    Write to Stephanie Yang at stephanie.yang@wsj.com and Alison Sider at alison.sider@wsj.com


    Looks like someone at the WSJ might be following Gails work?

    • Baby Doomer says:

      I love how they never talk about US economic growth. They also instead point to the fake unemployment numbers or stock market as their evidence that the economy is in great shape…

      • Baby Doomer says:

        Notice how this writer says global growth is good then proceeds to cite data about the US economy, to make it appear that they are connected together.

  3. Baby Doomer says:

    There are four very familiar cures for over population, they ride horses.

    • Davidin100millionbilliontrillionzillionyears says:

      and yet, JMG thinks this (IC) civilization will follow a similar stairstep downward path as past civilizations…

      lately, I’ve become convinced by others that this one will be different…

      IC is a worldwide network of JIT systems…

      it’s entirely different than past civilizations…

      the four horsemen will be hyper busy this time…

      • jupiviv says:

        “and yet, JMG thinks this (IC) civilization will follow a similar stairstep downward path as past civilizations…

        lately, I’ve become convinced by others that this one will be different…”

        I presume “others” refer to the guy who thinks it’ll happen on June 1st. Greer’s staircase decline is really a linear decline (plotted along the edges of the “stairs”), where the entire IC is still functioning but to incrementally lesser degrees over time. I suggest a metamorphic/stepwise decline, where over time entire segments of the current IC become absent or unrecognisable as they cannot be supported any more. By “segments” I don’t just mean “peripheral countries”, but also standards of living, services, prices, various jobs etc.

        A good way to understand this is by imagining the entire FF energy system as a moiety of two systems – one that produces and another that disperses energy. As long as the production system remains “hotter” than the dispersal system, everything is fine. However, over time, the dispersal system (commerce, consumption, most modern jobs etc.) demands more heat and it isn’t forthcoming from the production system (resource extraction, more efficient production & products etc.), leading to equilibrium. The only solution is cooling the dispersal system, and that necessarily involves metamorphosis/phase change.

        • Davidin100millionbilliontrillionzillionyears says:

          “I presume “others” refer to the guy who thinks it’ll happen on June 1st.”

          oh no… I’m still guessing 2030s…

          “over time entire segments of the current IC become absent or unrecognisable as they cannot be supported any more. By “segments” I don’t just mean “peripheral countries”, but also standards of living, services, prices, various jobs etc.”

          I’d say this is a good probability, and is unlike all past civilizations…

          “segments” or parts of IC will fail sporadically…

          at some point, these failures will accumulate to a tipping point and the whole system will fail…

          I think it’s obvious that we are already seeing “segments” failing…

          • Fast Eddy says:

            I see no global ‘stepping down’ at all.

            I see stepping down in some countries….

            But then I see stepping up in other countries – particularly China….

            So that overall the global economy is growing… it is not collapsing…

            And that has always been the case… ebb and flow… some countries become prosperous… others sink into poverty….

            Collapse when it comes — will involve all countries … it will involve a drop in global GDP… which will lead to a deflationary death spiral…

            And then the power will go off – permanently…

            • Harry Gibbs says:

              What is new and sobering is that many of the countries currently “stepping down” may be doing so irreversibly. In the past there was always the possibility that accelerating growth somewhere on the planet and/or the discovery/development of native resources could pull a struggling economy out of a slump. But now nations like Venezuela and Iran are withering on the vine with little hope of re-invigoration.

              Nothing’s getting better in those nations and then, at some unknowable point, they will be sucked into the global, deflationary collapse you envision, FE, and things will get a whole lot worse. Depressing.

            • Fast Eddy says:

              One must not dwell on that … one must live as if BAU will live forever… but at the same time understanding that it is about to end imminently…. that requires keeping two diametrically opposing thoughts in one’s head at the same time…. if that is proving difficult (and it most definitely is)… Abilify might help….

          • jupiviv says:

            “I’d say this is a good probability, and is unlike all past civilizations…”

            It is exactly like past collapses, except more quick, pervasive and complex.

            • doomphd says:

              I wonder about Venezuela. It’s true that the present government and economy are a mess, but those oil and gas resources are there for others to exploit, once the present crowd is gone. For any natives still around, there might be an economic resurgence for them (i.e., paying jobs, a new sound currency) based upon further exploitation of those resources. See Iraq, Libya as MENA examples.

      • Slow Paul says:

        We will see… It will probably be a little bit linear collapse, little bit staircase collapse, little bit instant collapse. If your dark chocolate doesn’t show up at the store, maybe some apples will. If your Tesla breaks down maybe you can find an old Honda. Lots of FF made stuff in stock (laying around) we haven’t “used up” yet. Lots of potential for (forced) simplification of life.

  4. Pingback: Are High Oil Prices Sustainable? – The Southern Examiner

  5. Fast Eddy says:

    Otago Update – Fast Eddy’s Log Doomsdate 23/04/2018

    We’ve landed on this moonscape and have been unpacking a lot of ‘stuff’… because stuff is what humans live for….

    It’s only April but it is quite chilly at night. I asked the neighbours if this weather is normal – and they said yep – April is normally chilly…. So that debunks the XXX XXXX theory (again).

    My chief engineer spends all her time at wine tastings so I have been left alone to work out this Rayburn thingy… which is quite important because it means the difference between life and freezing to death…

    Apparently it can burn wood or coal … but coal burns hotter so is better….

    I Google and can’t find anyone selling coal nearby —- so I call the shop that distributes Rayburn and the lady says — coal is only allowed in rural areas so there is not a lot of demand for it… she tells me she will email a contact — but then goes off on how coal is really bad for the planet… XXX XXXXXing and all that kllllimmmate porrrrn BS….and how I should burn wood only….

    But would does not burn as hot as good coal… and a load of coal will burn the entire night… and I hate getting up in the middle of the night to add more would so as you can imagine — I am thinking F789 THAT!

    She is of course barking up the wrong tree with all of this…. I ask her how much COAL I will need for the winter… she estimates around 2 tonnes…

    TWO TONNES.. I exclaim… wow that’s a lot eh….

    She says yes it is quite a lot (murmuring beneath her breath about XXXXX XXXXXX…)

    Meanwhile I am thinking — if burning coal does lead to warmer weather in Otago then that would be a good thing… so she should be happy that I am going to go exclusively with coal… a little warmer would be great … unless she is a skier… but I doubt that… she didn’t sound like someone who would ski…. skiing is not green enough due all the coal used to power the lifts….

    So now I am eagerly awaiting my first delivery of hard black wonderful coal…. I can’t wait to shovel the first scoop into the stove…. and feel the intense heats… and watch the black smoke go up the chimney….

    More updates later

  6. Fast Eddy says:

    How Much Longer Can Pemex Hang On?

    It lost $18 billion in Q4 on declining revenues and production, has $102 billion in debt, and now its world is changing.

    For the fourth quarter of 2017 the company posted a zinging loss of 352.3 billion pesos ($18 billion), blaming a weaker peso exchange rate, new reporting rules and higher financing costs. The loss compares to a profit of 72.6 billion pesos in the year-ago period. While the group’s sales increased by some 30% over the duration of 2017, largely due to higher oil prices, costs ballooned by 115%.


    • Fast Eddy says:

      Whatever Pemex’s new top management might say, the group’s vital signs are still extremely weak. Between 2016 and 2017, its production of crude oil slid 9.5%, from 2.15 million barrels per day to 1.95 million, its lowest level since 1980. Its average daily level of natural gas extraction also fell 12.5% to 5.06 billion cubic feet per day.

      • Ouch! Pemex is of course Mexico’s big oil company. It has been hurt by low oil prices and the government’s need for a high tax rate. The big run up in debt referred to in debt is an attempt to bridge the gap.

        • Fast Eddy says:

          Finally the author is acknowledging that one of the problems is that viable oil reserves – and production — is declining… I had commented on his site (not the Wolf site) about this previously and he initially rejected that theory…

          If you look at the comments section you see all sorts of cognitive dissonance … nobody wants to touch the end of oil meme… because that hits too close to home… it pushes the fear button ….

  7. Harry Gibbs says:

    “Britain cannot rely on gas imports from Europe to help keep the lights on during extremely cold weather, a report out on Monday warns, underlining the vulnerability of the country’s energy supplies to market volatility.

    “During the cold snap at the start of March — dubbed the “Beast from the East” — domestic demand for power surged as households and businesses turned up their heating. Britain’s interconnector with France, however, exported power to the continent on two of the coldest days — February 28 and March 1 — new research shows.

    “Wholesale power prices in the UK rose five times the average for the quarter, peaking at £990 per MWh, but prices on the continent climbed even higher to meet strong French demand. French consumers use more electricity for heating than their British counterparts.

    ““While the European interconnector is an important part of Great Britain’s electricity infrastructure, it responds solely to price,” said Andy Koss, chief executive of Drax Power. “Therefore, if Europe has a cold snap, the country is at the end of the line, leaving consumers vulnerable to security of supply and higher prices.”

    “The interconnector with France represents about 50 per cent of the UK’s total interconnector capacity. The remainder is accounted for by links between the UK and the Netherlands, and Northern Ireland and the Republic of Ireland. Prices remained lower in the Netherlands so gas kept flowing to Britain…”


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