European energy markets are experiencing an unprecedented shock. In the first quarter of 2022, short-term gas prices on the largest European exchange were five times higher than their 2021 average, Trend reports with reference to Mckinsey and Co.
The company said in its latest report that the upward price pressures come from a confluence of long-term trends and current events, including shifts in sentiment among customers and investors, carbon pricing, the post-COVID-19 surge in global demand, and, most recently, the conflict in Ukraine.
“In energy-intensive industries, these extraordinary increases are having a profound impact on production costs, which have risen by almost 50 percent in some sectors. The situation is likely to be prolonged. Futures markets are pricing European gas at twice or three times their 2021 levels for at least the next three years. Companies in these sectors face an urgent need for action. They must ensure the viability of their businesses today and find ways to maintain or extend their competitiveness for the future. In this environment, two groups of short-term moves could create significant value for big energy users: a new approach to energy procurement and a radical focus on energy efficiency and decarbonization,” the report reads.
Mckinsey and Co.’s modeling indicates that the companies which make the boldest and fastest moves in both these areas could achieve sustainable margin improvements of up to 10 percent while simultaneously reducing their carbon footprint by 40 percent or more.
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