The influence of Covid-19 and the temperate winter: comparison with last year

We compare the consumption trend of the first five months of this year with the same period last year and examine the consequences in terms of price formation.

We can describe with relative certainty the reasons for the decline in consumption and spot and forward prices and attribute the main responsibilities that affected consumption and prices to the temperate winter and the Covid-19 emergency.

The month of January 2020 was only affected by above-average temperatures and an overabundance of gas across Europe. The dispute over tariffs between the US and China seemed to be over, there was certainty of Great Britain’s exit from the EU and oil producers were united in the name of controlling world production. In terms of prices, tensions in Libya and Iraq-Iran had brought Brent to 70 dollars a barrel at the beginning of the year.

Already at the end of January, however, the explosion of an outbreak of Covid-19 infection in the Chinese city of Wuhan had led to the adoption of exceptional measures and the blocking of many production activities also in the rest of China, with strong limitations on the movement of people and goods to and from the Asian country. Since February, Brent had begun to decline until it reached $20 a barrel in mid-April.

Italy had been feeling the effects of Covid-19 since February and, subsequently, the rest of the world began to feel the effects. Confinement measures began in Italy on 9 March, with the adoption of the emergency protocol which imposed restrictions on the free movement of people for health reasons. On March 11, Covid-19 was declared a pandemic and by the end of the month 187 countries had adopted lockdown measures.

The winter months, not just January, were characterized by above-average temperatures and a surplus of LNG, elements that contributed to decreasing spot and forward prices of natural gas across Europe.

The consequences immediately affected consumption, spot and forward prices which had reached historic lows.

An analysis is shown in the form of graphs and tables, relating to the consumption and prices of electricity and natural gas.

1. Electric energy

• (Graph 1) Trend in Italian gross domestic electricity consumption in the first five months of the year.

• (Graph 2) Difference in electricity demand in Italy from January to May 2020 compared to the same period in 2019.

• (Table 1) Table with average spot prices (Electricity Exchange) and forwards for the years 2021 and 2022 (EEX Settlement)