What are the causes of soaring energy prices in Europe

Europe is facing an energy crisis caused by soaring wholesale prices for natural gas, increasing the prospects of higher utility bills for customers and forcing some manufacturers to shut down.

A complex mix of forces is behind the unprecedented surge in the European gas market, creating a “perfect storm” of higher than expected demand and weak supply.

ILLINOIS LEGISLATION SAVES RISKY NUCLEAR POWER PLANTS THANKS TO A CLEAN ENERGY BILL

“We’ve never seen a price like this,” said Ira Joseph, global head of fuel production and electricity pricing at S&P Global. “We were expecting some kind of recovery from COVID because the prices were extremely low last year, but it’s really extreme stuff.”

Global demand is on the rise as economies open in the wake of the coronavirus pandemic, while a cold snap that occurred in the latter part of winter this year has drained storage levels below normal levels, which means there is little capacity available.

There are other factors at play. Stronger demand for liquefied natural gas exports in more competitive Asian markets has diverted cargo from Europe.

Europe has also seen exceptionally calm weather in recent weeks, causing wind generation to drop and putting additional pressure on gas supplies, particularly in the UK, where wind normally supplies 20% of the gas. electricity of the country.

“You ended up with an almost perfect storm with a lot of things together,” said Anna Mikulska, a non-resident energy studies fellow for the Center for Energy Studies at the Baker Institute for Public Policy at Rice University.

Soaring natural gas prices are hurting across Europe, where the fuel is used for home heating and cooking, as well as for power generation.

A major fertilizer company has announced the closure of two factories in the UK due to high natural gas prices. UKSteel, an industry group, said this week that some steelmakers have had to periodically suspend operations due to “sky-high” electricity prices.

The story continues

The governments of some countries, including Spain, Italy, France and Greece, have taken steps to reduce consumers’ electricity bills.

And it could get worse as winter approaches, when fuel demand is typically the highest. The possibility prompted senior US official Amos Hochstein, the State Department’s envoy for energy security, to warn this week that Europe is not doing enough.

“I’m worried because I don’t think we should ever be able to know that if it’s a cold winter there isn’t enough supply,” Hochstein said during a visit to Warsaw, Poland.

Gas prices in the United States have also increased, but not to the same extent. The United States is less vulnerable to price spikes due to its large domestic supply of cheap gas from shale drilling, while Europe has to import most of its gas.

In addition, Russia, the largest exporter of natural gas to Europe, is not sharing as much as one would expect when gas is at such high prices, even though its production has remained stable in its country.

“It’s not just about geopolitical games,” Hochstein told the Financial Times. “People’s lives are at stake.”

The Biden administration has tasked Hochstein with working to mitigate the risks posed by Russia’s Nord Stream 2 gas pipeline to Germany, which is expected to be operational this year after the United States recently dropped sanctions against him despite fears that the project would worsen Europe’s dependence on Moscow for energy.

A group of European Union lawmakers have called for an investigation into the influence of Gazprom, Russia’s state-owned energy company, on soaring prices, accusing Moscow of deliberately restricting Europe’s natural gas supply.

Analysts, however, say there is no conclusive evidence on this. Gazprom denied the charges.

“There has not been the kind of response one would expect from Russia at these prices,” Joseph said. “But there is nothing wrong with what is happening now in terms of export levels.”

Critics of the European Union’s aggressive climate policies, including fossil-fuel-dependent Poland, have blamed Brussels for the higher prices.

As countries shut down conventional ‘core’ coal and nuclear power plants and rely more on renewables such as wind and solar to meet emission reduction targets, natural gas is under increased pressure when these intermittent sources are not available.

The costs of carbon permits under the European Emissions Trading System are at record highs, so there has not been as much of a shift from natural gas to higher-emitting coal than what one would have expected with soaring gas prices.

Nikos Tsafos of the Center for Strategic and International Studies said there was no evidence to support the idea that Europe’s climate policies are causing the natural gas shortage.

“There have been no restrictions in gas supply due to the clean energy transition justifying these prices,” said Tsafos, who studies energy and natural gas geopolitics and European climate policy.

But the European Union is guarding against the possibility of a prolonged surge in energy prices that could provoke a popular backlash against its climate policies.

“The only thing we cannot afford is for the social side to oppose the climate side. I see this threat very clearly now that we are discussing rising prices in the energy sector, ”European Commission Vice-President for Climate Affairs Frans Timmermans said at a parliamentary meeting this week.

But he argued that higher natural gas prices strengthen the case for a rapid shift to cleaner energy sources to reduce reliance on fossil fuels.

CLICK HERE TO LEARN MORE ABOUT THE WASHINGTON EXAMINER

Tsafos said the transition to renewables will not prevent temporary fluctuations in energy prices, as damage from extreme weather conditions compounded by climate change can wreak havoc on the production of all types of energy. sources of energy.

“The idea that if we had a faster transition we wouldn’t have huge price swings is insane,” Tsafos said. “You would still have volatile production and demand that could go up and down with extreme weather conditions. The question is, do you have a system to flexibly adapt to these changes? “

Washington Examiner Videos

Key words: News, Energy and environment, Europe, Natural gas, United Kingdom, Germany, France, Climate change, Russia, Foreign policy

Original author: Josh siegel

Original location: What are the causes of soaring energy prices in Europe