Europe is currently experiencing a severe energy crisis, with its countries all over being impacted by extremely high and unstable energy prices, particularly for natural fuels. Extreme price volatility was observed by the energy market over the previous two years, for example, when supply shrank due to the pandemic and demand increased as a result. The war in Ukraine has further affected fossil fuel supply and the broader market, in which the Russian Federation is the main exporter of natural gas and the second largest producer of oil.
Rising energy costs could force many developing nations away from energy markets, having a significant negative impact on their most susceptible citizens. This predicament is already hampering hard-won improvements in energy access and poverty reduction, and the pandemic has already slowed down the process. This dynamic is made worse by the food and financial difficulties that these nations are also dealing with as a result of the pandemic and the war in Ukraine, all of which have put enormous social and financial strain on the nations. For a multilateral system based on trust and proportionality, a potential “scramble for fuel” in which only those nations paying the highest price can gain access would be disastrous. On that note, in this blog, we’ll talk about the causes, effects, best practices, and solutions to the energy crisis in Europe.
Energy Crisis In Europe
As a result of the conflict in Ukraine, Europe is bracing for a challenging winter without Russian gas supplies. The International Energy Agency (IEA) issued a warning a few months back, stating that Europe should significantly reduce its gas usage in the coming months to avoid a harsh winter. The IEA’s executive director, Fatih Birol, stated that this is the first time in history that an energy crisis is worldwide. The warning comes as the heatwave has already made the energy crisis, the most significant problem that Europe has faced in recent decades, worse.
The IEA estimates that 12 billion cubic meters of natural gas, or the equivalent of 130 LNG containers, should have been saved over the last three months. Governments across Europe are scrambling to stockpile natural gas supplies in underground storage facilities so that households will have enough fuel to stay warm during the forthcoming winter. With petrol prices on the rise, Europe is rushing to conserve enough fuel to survive through the winter. Rising energy costs are increasing household expenses, causing inflation to reach its highest point in decades, and reducing people’s purchasing power. For instance, one of the European countries, Germany formerly purchased more than half of its gas from Russia, and the government is currently working to secure winter gas supplies amid concerns that Moscow may soon entirely shut off the taps.
Germany’s natural gas storage facilities reached a fill level of more than 75% this month, two weeks ahead of schedule, and the most recent data gathered by industry group Gas Infrastructure Europe shows that Germany’s gas storage facilities are slightly over 77% full. This is in anticipation of the upcoming winter.
German Chancellor Olaf Scholz’s administration previously anticipated that gas storage levels would reach 75% by September, 85% by October 1, and 95% by November 1. However, Germany has been able to quickly fill its gas stocks in recent weeks due to a number of factors, including the robust supply from Norway and other European countries, falling demand amid skyrocketing electricity prices, business owners switching from gas to other types of energy, and the government offering more than £15 billion ($15 billion) in credit lines to replenish storage facilities.
Causes of the European Energy Crisis
Nuclear energy and natural gas have been the two technologies that have contributed most to the production of electricity over the previous five years in Europe. Nuclear power plants provided 27% of the EU’s electricity in 2021, while natural gas provided 17%. Because of this, European policymakers have recognised that these energy production methods may provide consumers with low-cost energy by utilizing the infrastructure and knowledge already in place while securing appropriate energy resources.
Alongside Saudi Arabia and the United States, Russia is unquestionably among the key players on the world energy scene. The invasion of Ukraine confirmed Europe’s reliance on Russian gas and unequivocally demonstrated the importance of diversifying the energy supply chain for energy security.
The provision of adequate energy at a reasonable cost for all inhabitants is currently Europe’s top political concern, as the demand for renewable energy sources (RES) cannot be fully met. All people must have access to energy at all times and at the lowest possible cost, especially the most vulnerable members of society. This assumes a front against speculative pressures at the national level as well as at the European level with coordinated actions to strike the right balance between electricity and gas prices.
In fact, since Russia’s invasion of Ukraine in February and the West’s subsequent decision to retaliate against Moscow with economic sanctions, Russian gas deliveries to 12 EU nations have been stopped or reduced. Before the war, Russia contributed around 40% of Europe’s natural gas; today, that percentage is closer to 15%, driving up prices and placing a pressure on energy-intensive sectors.
Experts forecast that the Nord Stream 1 pipeline’s capacity will also fluctuate between zero and 20% in the next months, causing an energy recession in Europe in the winter of 2022–2023. The gas supply from Russia to Germany has been significantly curtailed.
As Russia intensified its campaign against Ukraine, Europe, on the other hand, viewed the supply cut as a political ploy meant to spread unease throughout Europe and drive up energy prices. While other nations’ gas supplies have been substantially curtailed, Bulgaria, Denmark, Finland, the Netherlands, and Poland have already experienced a reduction in their gas supply.
Effects of the European Energy Crisis
In Europe, most people typically worry about energy no more frequently than they think about air, unless outages start to happen or gas costs make transportation actually prohibitive. Due to this, Americans have largely been shielded from the serious and occasionally fatal energy crisis that is affecting nations all over the world. The problem is getting worse and is impossible to ignore in many other places, notably in Europe.
To be obvious, there is already an energy crisis in Europe, and the Russia-Ukraine conflict is solely to blame for such severeness. According to the Dutch TTF market, natural gas prices reached $3100 per 1000 cubic meters in the middle of August, a 610% rise from the same period the previous year. Many power plants cannot afford to run for an extended period of time at this cost. The benchmark power rates in Europe have increased by approximately 300% in 2022, setting records as a result of the rising cost of input fuels. Energy costs are collectively eight times higher than the five-year norm.
The weather in the upcoming months may determine how serious or deep this problem is. Since people don’t have much time to respond to a particularly high surge in the middle of winter, this is a condition that increases market fear. The anticipated base case scenario does not include the hazards associated with restricting gas supplies. But rationing becomes more dangerous when it’s especially cold.
The most obvious effect on common European residents will be substantially higher energy costs, especially over the next six months or so, due to a slightly delayed cost passthrough to consumers. People may be impacted by this issue in additional ways. Lowering natural gas consumption in the industrial sector could be one approach to this situation. This could indicate less economic activity, higher unemployment rates, and a greater risk of recession. The economists assume that Europe is already in a recession. Winter without the primary fuel that powers the lights is not an easy procedure.
Best Practices and Solutions to Combat Energy Crisis in Europe
The European Union decided last month to cut back on its consumption of natural gas in order to counter the possibility of more Russian supply restrictions, though the legislation includes exceptions for some nations. With voluntary actions, the proposed law is intended to reduce gas demand by 15% from August through March. The law calls for voluntary national activities to cut gas use, but if those don’t save enough money, the 27-member bloc would have to take forced measures. As Europe was recovering from a pandemic-induced depression, the disruptions in Russian energy trade with the EU were already driving inflation to record highs and endangering a recession. The EU’s member states are free to choose how to best accomplish the aim of reducing 15% of their average yearly gas use over the previous five years under the ministerial agreement that was signed in less than a week. For nations that might be particularly vulnerable to certain cuts or find themselves particularly exposed to such challenges, exemptions are permitted. The ministers changed some of the original proposal’s provisions, including the exclusions for small island nations like Malta, Ireland, and Cyprus that have fewer energy options.
Furthermore, the EU has decided to ban Russian oil and coal beginning later this year, but has decided against punishing Russia for its natural gas because Germany, Italy, and several other member states significantly rely on imported gas. Many European countries have already started to implement various energy conservation strategies and measures to make people aware of the energy come winter crisis and take necessary steps to save energy at any cost.
For instance, Italy started “Operation Thermostat” earlier this year in an effort to reduce over use of air conditioning in public and educational buildings. Germany, France, and Spain have done the same. By lowering office thermostats in the winter and guaranteeing that air conditioners in public buildings and retail establishments are used more effectively, France intends to save energy. The summer campaign in Germany emphasized turning down the air conditioning in public transportation and purchasing more water-saving shower heads. Many cities have cut back on their metropolitan illumination and lowered the temperature in their swimming pools.
The cost of living has significantly increased for Europeans due to rising energy prices. Global oil prices have doubled since the beginning of last year, along with coal and natural gas costs in Europe, which have nearly quadrupled. Since low-income households in the majority of European nations spend a bigger percentage of their income on gas and electricity, higher energy prices place an even greater burden on them. In addition, gas availability issues could have a serious negative effect on businesses and homes.
Even if Europe fills its storage to 90% of its maximum capacity, there is still “a heightened danger for gas supply disruptions in the case of a total Russian cutoff,” according to Birol. On that note, if Europe does not adhere to the mandatory energy usage norms set by the governments, this winter will be the worst one yet and the continent will experience the worst energy crisis ever.