Europe Energy Crisis (or) Energy Crisis in Europe
Welcome to the Second Part of the article on the Energy Crisis – Europe Energy Crisis (or) Energy Crisis in Europe. Many may have wondered why both South Africa and Europe are mentioned in the same topic while both are completely different (as one is the country and one is the continent) and then separated into two different parts of articles. The reason for this is both have a common crisis or say problem – Energy Crisis.
Initially, an attempt was made to only brief the issues of both South Africa and Europe into one single article (or post); but fortunately (or) unfortunately while things were unravelling it was realised that one article (or post) is not enough to discuss the issues of both the places. Therefore, the article was bifurcated into two parts one for South Africa and Another for Europe. So, let’s get started with Europe Energy Crisis (or) Energy Crisis in Europe.
Europe Energy Crisis (or) Energy Crisis in Europe
Last Year Russia started invading Ukraine, and within months there was a panic situation in Europe over energy Supplies. Europe receives natural gas (flows) through pipelines from Russia. Once the war started within months the natural gas was relatively dropped and the wholesale price was up 10 times higher compared to a year ago. The administrators cautioned of fuel rationing and blackouts as winter started.
How Europe Survived in this Winter – Actions by European Union (EU)
But, now Europe has more than enough gas thanks to Norway, shale fields of Texas and Qatar – as much of the gas comes from these regions. There is no longer imminent talk of rationing, as the prices have fallen below pre-war level and continued to slip lower almost every day. To tackle winter Europe took rapid action by filling its gas storage capacity at record prices to boost its energy security.
Along with this ‘Luck’ also played a major role. As the weather was relatively mild in terms of temperature which reduced the demand for more energy supply. Europe experienced the third-warmest autumn on record, which continued to winter. The mercury in many cities across eastern and central Europe, in January, was close to or above 68° Fahrenheit (i.e. 20°Celcius), whereas normally it would be sub-zero temperatures in winters (esp. in January).
EU increased its imports of Liquefied Natural Gas (LNG) by 60% in 2022 compared to 2021. Norway, the world’s third-largest gas exporter, became the top supplier of Natural gas to Europe by the end of the year with an increase of 8% in 2022 (against 2021).
A consensus was made among European Union (EU) leaders to reduce gas consumption by 15% compared with the corresponding period of five years. And this consensus was for the period between 1st August 2022 and 31st March 2023.
According to the European Commission, the consumption of Natural Gas in the EU has dropped significantly by 19.3% between August 2022 and January 2023 – compared with an average consumption of the corresponding period between 2017-2022.
Source: Dataset, EuroStat
Europe Survived this winter by avoiding an energy disaster. Thanks to a concerted effort to reduce consumption and boost alternative deliveries like LNG.
The main key to this success of sailing this winter should go to the companies to halt factories or say to slow down their production due to spiralling costs of gas. It will be a great challenge for Europe to go back to the earlier level without cheap Russian fuel. If the normalcy in factory production returns then it would increase the gas demand which will tighten the limited global supplies as a result there will be increasing in prices again.
Where is the Problem or What’s the Problem then?
All is well so far, then what’s the problem? Why everyone is talking about Europe Energy Crisis? Well, here comes the list of problems
EU had more gas storage at the start of February 2023 compared to the same period in 2022. This is due to lower demand in other markets globally along with largely smooth operations at LNG transport facilities. Things might change at any time.
A fire at the Freeport LNG liquefaction facility occurred in Texas in June 2022, this has reduced (though temporarily) US export capacity by around one-sixth. When the incident was reviewed and analysed it was found that the blast was due to the inadequate testing procedure and operator fatigue among other problems. This increased LNG prices and also made seven other major LNG facilities run close to full capacity.
This incident is a kind of warning for Europe – if there are more incidents at more facilities over the coming years then Europe’s gas supplies will get hit. The risk of Supply disruption can have a great impact on LNG demand next winter than it was in 2022. Many analysts are expecting more demand for LNG in 2023.
Another fear which is looming around is China. Yes, you’ve read it right – China. There is a fear of the next winter from China. This is because due to Covid-19 restrictions China curbed its consumption which was advantageous to Europe as many of the LNG shipments headed towards them. But, the worry for next winter is that colder temperatures (expected to be much colder than 2022 at least) combined with China’s consumption could put pressure on global gas supplies. This may surge the gas prices again. This means if China starts buying – as they opened up now – then Europe may be in deep trouble for at least two years.
The prices of European Gas remain high which is a long-term threat to its manufacturing base. At present, Europe is heavily reliant on LNG – mainly transported by ship – which is significantly more expensive than gas arriving by pipeline from Russian supplies.
Europe is forced to reconfigure as the industries are heavily dependent on gas. Some of the manufacturers (like fertilisers and ammonia) are looking to move their production hubs to places with lower costs. Some are even thinking to reconfigure by completely removing gas from their supply chain. More companies may be forced to join the migration.
The main advantage of Europe is its purchasing power – consenting to pay more for energy than many other markets – which is the greatest strength that can come into play whenever the situation demands. Europe should focus on green investments rather than going for untargeted, costly, and inefficient schemes support.
