Europe’s energy crisis is bad, but better than expected | Whuff News


When Russia cut off natural gas supplies to Europe on the eve of the downturn, politicians and business leaders predicted a devastating energy crisis that would trigger a deep recession. Europe was already grappling with runaway prices as the continent struggled to recover from Covid-related supply chain and market hiccups while also ordering the Kremlin to condemn Putin’s illegal invasion of Ukraine. Clapping Russia’s energy sanctions has not been easy in Europe. Outright ending trade with the energy titan would be a pyrrhic plan for Europe, which has relied heavily on Russian fossil fuels to keep the lights on. Germany alone imported more than half of its natural gas from Russia, mostly through the Nord Stream 1 pipeline. The European Union was already trying to change its energy to work in a way that would lead to a meaningful punishment in the Kremlin when the Russian energy company Gazprom completely and indefinitely. he stopped walking of natural gas in the block overnight, citing suspected infrastructure issues. The announcement came just hours after the G7 countries announced they would set the price of Russian oil.

Europe was not ready at all. The outlook was bleak, to say the least, as the continent scrambled to find new supplies before a long and painful winter. But so far, the rise in electricity prices has been much smaller than expected. To be sure, the prices are still painfully high for most consumers. But the current spot price of natural gas is approx €50/MWhwhile double the “normal” pre-shock rate, it’s a big improvement from the record prices of more than €300/MWh seen in late August.

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In fact, in last week’s market volatility, the spot price of European natural gas even briefly underperformed the Dutch benchmark. The Financial Times says: “For an hour, suppliers were willing to pay almost €16 for a person who can absorb a megawatt of gas, equivalent to the average monthly consumption of Britain. So far, the prices before the month of November are 100 euros/MWh, less than a third of the peak price, and the prices predicted for November 2023 have also dropped from almost 300/MWh to about 140 euros. To be sure, this is still a painfully high price that is sure to hit consumers where it hurts, but it is far, far better than the worst-case scenario that, until recently, seemed likely to happen.

In fact, an op-ed in the Financial Times says that Europe’s energy crisis is almost over, as a combination of increased supply (mostly from solar power) and reduced demand in response to higher prices has helped electricity prices run. As part of the effort to leave energy sales to Russia, two thirds of the countries in the European Union – 18 out of 27 – set new records for solar energy production between May and August 2022, and forecasts from Statkraft show that European solar power will see a moderate increase 45GW and 52GW each year leading up to 2030 – a huge increase on last year’s pre-attack estimates.

While the story on the supply side of the curve is happy, however, the demand side is much worse. Much of the dip in natural gas demand in the European Union came from the collapse of the fertilizer industry, which requires large amounts of natural gas to produce ammonia. When the cost of operating a fertilizer plant became prohibitive, many large companies stopped working, leading to significant fertilizer shortages, which will ultimately result in severe grain shortages. The truth is that while the energy crisis may be easing in Europe, it is still just beginning all over the world. And the poorest developing countries, it will not only be an energy problem, but a food problem as well.

By Haley Zaremba of Oilprice.com

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