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Energy prices are through the roof across Europe as demand increases and supply tightens in the wake of the novel coronavirus pandemic. During the global economic shutdown, energy production declined dramatically as industries shut down, people stayed indoors, and demand for electricity and fuel fell. Now, as the world returns to work and returns to the “new normal”, the demand for energy is back with a vengeance, but the energy supply is just not there.
First European reference for natural gas, the Dutch Ease of title transfer, reports that prices have risen from € 16 per megawatt hour at the start of this year to € 75 in mid-September, representing an increase of over 360%. Italian authorities have warned their citizens to expect a 40% increase in their bills in the coming weeks and months. Spain has agreed to send payments of € 100 to more than 5.8 million low-income households and sent a letter to Brussels imploring the European Union (EU) to take radical action.
And then there is Russia. Almost half of all natural gas imports into the EU come from the great white north, making Europe very dependent on the Kremlin for its energy security. This dependence is a big part of why Europe is now entering an energy crisis, because while the demand for natural gas has increased, Russia has not increased its exports to the EU. On the one hand, Europe competes with Asia for finite energy resources as the two continents come back to life as pandemic restrictions relax. So far, the markets seem to favor Asia, for economic and strategic reasons.
There is much speculation that this is a strategic move by the Putin administration to pass the opening of the controversial Nord Stream 2 pipeline. The 1,230 kilometer pipeline, which passes under the Baltic Sea to connect Russia and Germany, is completed but has not yet been put into operation. The project has drawn widespread criticism for “perpetuating the bloc’s dependence on fossil fuels and expanding President Putin’s geopolitical influence” according to Euronews. And now Europe’s dependence on Russia is highlighted by the current energy crisis and the appeasement of the Kremlin while opening a new entry point for much needed natural gas can make the Nord Stream 2 a little more attractive.
Russia is not just playing with natural gas. As struggling European energy markets seek to import any form of affordable energy possible, power producers have also resorted to Russian coal, with little success. The EU has been working to wean itself off coal entirely for years now, and when demand for the dirtiest fossil fuel suddenly increases this winter, the previously avoided fuel source is likely to be extremely scarce, as supply routes outside Russia, the world’s third largest exporter of coal, have been almost entirely reoriented towards Asia.
“If all European utilities switch to coal, it will lead to a huge increase in demand for coal that Russia alone cannot meet in such a short timeframe,” said Natasha Tyrina, research analyst at Wood Mackenzie Ltd. . says Bloomberg this week. “It would also require supply from other countries, the United States for example, but the situation is similar there to everywhere else.”
As we head into the cold winter months, Europe’s energy crisis is about to worsen and their dependence on Russia to keep the lights on will only intensify. . Asia will also face an energy crisis this winter, leading the whole world to resort to burning more and more coal at a time when most countries have pledged to do the exact opposite. At a time when countries are just starting a green energy transition in earnest, and the United Nations is ringing a “red code for humanity”Regarding climate change, this return to coal is an extremely worrying development which will hopefully be short-lived as even coal proves insufficient to alleviate supply shortages in the months to come.
By Haley Zaremba for OilUSD
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