Since the outbreak of the conflict between Russia and Ukraine, Europe has followed the US in imposing energy sanctions on Russia, while Russia has suspended gas supplies in response. This set off a prolonged energy crisis in Europe. With the situation in Ukraine and Russia still uncertain and the European Union locked in a standoff that won’t return gas supplies to normal anytime soon, European governments are trying to diversify supplies and take steps to reduce demand and conserve energy.
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War is not the only cause of the energy crisis
Europe’s looming energy crisis began with the conflict between Russia and Ukraine, but longer-term structural problems lie behind it. No matter in the tradition or after the green transformation, the energy consumption of Europe is extremely dependent on coal, oil, and gas – the three major fossil energy.
From 1965 to 2001, the proportion of coal, oil, and natural gas in energy consumption in Europe has been on the rise. At the peak, the combined proportion of the three in Europe is more than half of the total energy consumption. In the remaining less than half, nuclear energy accounts for about 30%, water power accounts for 10%, and renewable energy such as solar energy and wind energy accounts for less than 5%. From 2001 to 2021, fossil energy increased and decreased, while renewable energy increased steadily but still accounted for a small proportion.
Natural gas has a high calorific value and produces fewer pollutants than coal and oil. Therefore, Europe’s energy transition is to gradually replace coal and nuclear power with natural gas and renewable energy.
However, Europe’s own fossil energy production is limited, and its import dependence and concentration are very high, which leads to a decline in the stability of the energy supply and a rise in vulnerability.
In 2021, Europe’s import dependency (net imports/total energy consumption) on coal and oil is 42% and 75% respectively, while its natural gas consumption is 2.7 times production, and import dependency is about 63%.
Europe’s natural gas is highly dependent on foreign countries (63%), and its import countries are highly centralized. Data shows that in 2021, Russia typically supplies about 40% of Europe’s natural gas, mostly by pipeline. Deliveries last year were around 155 billion cubic meters (LNG). Russia has always been the main source of energy for Europe, as it is a major energy producer and exporter and has unparalleled shipping distance advantages over other countries in geographical position.
Why is it so hard to refill gas storage?
First of all, the dependence on Russia is high, and new order from a single country is difficult to replace. Earlier, the US announced that it would provide the EU with an additional 15bn cubic meters of liquefied natural gas (LNG) this year, which seems like a lot, but is in fact only a tenth of Russia’s exports to Europe. Other important reasons include: LNG capacity is limited and the capacity can not be increased in the short term; The European Union lacks infrastructure such as LNG carrier berths and receiving stations, and there are great differences in infrastructure conditions and natural gas self-sufficiency rates among countries.
Why can’t other energy supplies fill the gas gap?
Because they’re not doing so well either. Data from Nuclear Energy Statistics show that electricity generation from nuclear plants in the EU decreased by 25.2 % between 2006 and 2020, while hydropower fell by 24 percent, leading to a 4 percent fall in overall power generation.
France, Europe’s nuclear powerhouse, has 56 nuclear reactors, which account for two-thirds of its total electricity capacity. However, the reactors are aging, and about 32 are currently offline for routine maintenance or corrosion risk assessments. As a result, France will be running at less than half its capacity this year.
In addition, extreme summer temperatures have reduced the water level of the Rhine River to near-record lows, slashed hydroelectric capacity, and disrupted the use of water to cool reactors at nuclear power plants and the transport of coal for electricity.
How many EU countries have already met their gas storage goals?
Most countries had met their goals. The European Council approved a regulation in late June requiring member states to hold at least 80 percent of their gas storage capacity by this winter. According to Gas Infrastructure Europe, the EU already met that target at the end of August. In October 2022, the average gas storage filling level among member states was over 92% which has helped gas prices start to fall.
According to data collected by an online coupon site – CouponBirds, European gas prices continued to rise since the shortage of gas but have fallen back since October. While full reserves may soften the blow this winter, they will always run out. Experts warn that Europe’s gas reserves will last only a few months, regardless of whether this winter is cold or warm.
The impact of the Energy crisis
Soaring gas prices have triggered electricity price hikes, leading to factory shutdowns and food crises, adding to inflationary pressures, and raising questions about energy policy and the transition to green energy… As the heating season approaches, the storm shows no sign of abating and is exacerbating Europe’s winter fears.
This September, many European countries received shocking electricity bills, which not only shocked consumers but also caught governments off guard. The Dutch Title Transfer Facility (TTF) wholesale electricity price was €74.15 per megawatt hour, four times higher than in March; In Spain and Portugal, average wholesale electricity prices at the beginning of September were about three times the average of six months earlier, at €175 per megawatt hour; In Britain wholesale electricity prices have risen to more than 10 times the average over the past decade.
Europe’s energy crisis adds to the downside risks. As gas flows tighten, the eurozone could face a longer and deeper recession, with the economy facing four consecutive quarters of contraction in 2023, with GDP falling by more than 2% for the year. Moreover, the upside risks to inflation have intensified. Deutsche Bank expects HICP inflation in the eurozone to peak at 10 percent in December this year before falling to an average of 6.2 percent in 2023.
Europe may be able to get its energy crisis under control this year as gas reserves grow and government spending plans subsidize people’s bills. But the biggest risk is actually next winter when Europe will not have access to Russian gas and government subsidies will not last forever. Faced with the economic downturn and the rising cost of living brought on by the energy crisis, European people should wear thicker clothes and watch every penny to survive the winter.
