Europe Has Escaped An Energy Crisis. Is The Problem Resolved, Though?

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Credits: David Clode/Unsplash

Due to exceptionally warm weather and efforts to discover other natural gas supplies after Russia cut off the majority of its supply to the continent, economists and government officials claim that Europe has avoided an energy apocalypse this winter, as reported by ABC News.

Alleyed concerns

Recently, natural gas suppliers raised their inventories at a time when they are often being depleted. This surprise gain allayed concerns that gas needed to heat homes produce electricity, and run factories would run out by the end of the winter.

Short-term gas prices as a result have decreased from record highs, dropping from 18 times to four times greater than they were prior to Russia massing soldiers on the border with Ukraine in early 2021. That’s still excruciatingly high, chipping away at business profits and consumer purchasing power due to exorbitant utility costs and inflation.

Analysts claim that rationing and shortages have not reached their worst-case scenario.

Here are key facts about Europe’s energy struggles:

Why is Europe facing less risk of gas shutoffs?

Since January 1, warm weather has made it possible for Europe’s storage facilities to stay 83% full, with levels even rising on some days. That’s remarkable. Typically, gas stores begin to be depleted around October and are recharged the following spring.

The rush to find new suppliers to replace the majority of Russian gas, which Europe depended on prior to the war, comes on top of record-high temperatures, which have damaged firms depending on winter sports. As states implemented sanctions and supported Ukraine, Moscow cut off the majority of its supply to Europe.

Rather than using pipelines, countries have planned to import expensive quantities of liquefied natural gas from Qatar and the United States. For approximately 10 billion euros, Germany leased five floating LNG import facilities, the first of which arrived in November.

The industry has decreased consumption, sometimes by simply ceasing the production of energy-intensive goods like steel or fertiliser that were no longer commercially viable at high costs.

German Energy Minister Robert Habeck told reporters this week, “We have avoided the worst that we were threatened with in summer… a full economic disaster for German and European industry.”

“The energy crisis per se is not ended, but the height of the emergency has been avoided,” according to Simone Tagliapietra, an energy policy expert at the Bruegel think tank in Brussels.

What does this mean for utility bills?

Although consumers may avoid any sharp price increases, bills will still be higher than usual because gas costs are still significantly higher than they were at the beginning of 2021.

The help of the government has provided some respite. Gas and electric price restrictions were enacted by the government in Germany, the biggest economy in Europe, allowing individuals and small businesses to purchase 80% of their energy at last year’s price.

That has been crucial for small enterprises that consume a lot of energy, like the 25 Cafe Ernst bakeries owned by Andreas Schmitt in the area surrounding Frankfurt.

Schmitt, who serves as vice chairman of the baker’s guild in the Hesse region in southwestern Germany, claimed that the price limitations “had helped calm down the worst expectations” from this summer.

He would have to pay an additional 800,000 euros ($858,120) in gas and electric charges to power his ovens and illuminate his stores in 2023 at the time of the energy price high in August. He now anticipates a 300,000 euro increase.

“That is not nice but it’s survivable,” Schmitt said.

According to price comparison website Check24, 8.8 million households in Germany will still see an average price increase of 38% this year, or 586 euros for a family of four. This is despite the energy limitations.

It would have been a 58% rise, or 911 euros more out of pocket, without the price relief.

Such assistance increases budget deficits, and not all of the 27 member states of the European Union are as financially stable as Germany, which could manage a 200 billion euro rescue package.

“My worry is that it’s not sustainable,” said Agata Loskot-Strachota, senior fellow at the Center for Eastern Studies in Warsaw. “And the other thing is differences between member states regarding the level of state financing that can be granted in longer terms. And these differences may fuel political differences in Europe.”

What happened to Putin’s energy war against Europe?

Putin has significantly less influence over Europe now that Europe has successfully filled its storehouse, according to analysts and politicians.

Surprisingly, some Russian gas is still being transported through pipelines that pass through Ukraine, Slovakia, the Black Sea, Turkey, and Bulgaria to reach Europe.

“I think this supply is a sign of weakness,” Tagliapietra said. With global oil prices low and Russia being a major exporter, “they need the cash.”

Fears of slowdowns in major economies including the U.S. and Europe as inflation and higher interest rates restrain growth have led to low oil prices.

Both a price ceiling on Russian crude imposed by the Group of Seven leading democracies and a ban on the majority of Russian oil beginning on December 5 had no impact on the abrupt rise in world oil prices. By prohibiting insurers, many of which are based in Europe or the United Kingdom, from handling Russian oil sold beyond the quota, the $60 per barrel price cap is enforced.

Russian President Vladimir Putin has threatened to shut off oil supplies to nations that adhere to the cap. But because it was set above the price at which Russian oil is currently traded, Moscow hasn’t cut back on output as a result. A large portion of the Russian oil that Western consumers avoided has been supplied at a significant discount to India and China.

Despite the fact that oil prices have declined from recent highs of $120 per barrel, things could yet change. Oil products like diesel may become more expensive in Europe once a ban on Russian imports goes into effect on February 5.

What could still go wrong?

Europe is susceptible to unanticipated occurrences like an accident or technical issue at a significant pipeline or LNG export terminal, severe weather, or low levels of wind or hydroelectric power.

Energy analysts are keeping an eye on China’s energy demand, as fuel consumption fell during the country’s “zero COVID” programme, which severely restricted transportation to stop the virus from spreading. The demand for shiploads of liquefied gas may increase later this year once a COVID-19 wave passes since China has lifted restrictions and because of this.

The losers in that scenario would be the less wealthy nations in Asia and Africa who lack the resources to compete, while Europe would suffer increased gas acquisition costs.

The International Energy Agency has cautioned Europe against overconfidence, stating that a scenario in which China’s demand recovers and Russia cuts off its remaining supplies might leave Europe gas-short for the upcoming winter. The IEA urged an aggressive push for efficiency improvements like energy-saving heat pumps to replace furnaces as well as renewable energy sources, saying such actions are “essential to head off the prospect of shortages and further sharp price hikes next year.”

Putin may still have energy cards to play given that Russia is a significant oil supplier and still sends some gas to Europe, according to Loskot-Strachota from the Center for Eastern Studies, despite the fact that his response to the oil price cap was subdued.

“In general, the response has been rather weak, but will that be it?” she said. “The energy crisis is not gone. We are not experiencing the worst-case scenario, but the factors of uncertainty are not gone.”

 


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Source: ABC News

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