Wed. Oct 5th, 2022

Prof. ST Hsieh

Director, US-China Energy Industry Forum

626-376-7460

[email protected]

August 23, 2022

The war in Ukraine is officially entering the sixth month! The sufferings of people in Ukraine are not hot news anymore. Rather, the grabbing headlines are the energy crisis in Europe and how each nation is struggling to cope with this man-made crisis. But a major Europe economic slowdown because of energy crisis will definitely drag down the global economy. Sadly, it seems that people around the world just can’t help much.

US and Europe owned and dominated the war in Ukraine started by Russia on February 24, 2022. The rest of the world has been warned by the West not to support Russia but make contributions to help Ukraine. The west implemented severe economic sanctions against Russia as soon as the war broke out with the designed purpose to completely crush Russia in a short time. Specifically, EU and England jumped to sanction Russian energy export to Europe hope to cutoff Russian revenues so that Russian would have to surrender. Their intention may be noble and to the point because EU and England do depend Russian energy and pay heftily every day. As such the strategic goal for the west is to be completely independent of Russian energy as soon as possible.

Even though this goal is rationale, but these political leaders probably never realize how much their economy depends on Russian energy and not the other way around. Russians immediately turned the table around and managed/reduced energy export to Europe which caused energy prices in Europe skyrocketed. Not only Europe’s economy turns south but Europe still has to pay higher prices for Russian energy than before the war. In addition, Russian energy starts to flow east to Asian market. The net result is that Russian keeps raking in Euros or Rubles so it does not have to stop the Ukraine war anytime soon.

Another fallacy of west sanctioning Russian energy export to Europe is that these leaders never thought the war in Ukraine could last to this winter, which is about two months away. Europe critically depends natural gases to keep households warm. Normally, Europe fills their natural gas storages before winter hits so that their households stay warm, while their industry still depends on Russian energy. Now with unstable natural gas supply from Russia, Europe is scrambling for making up base load electric power supply used to be generated by Russian gas.

Out of this necessity, many “old fashioned” or “non-green” power generation facilitates will have to be considered. For example, coal fired power plants and nuclear power plants are being prepared to be re-started or extended soon. However, these revived capacities will not be sufficient and power rationing seems to be inevitable this winter.

The worst perspective is, if the war does not end, Europe will have to suffer many cold winters. Unfortunately, global economy will continue to suffer too.

These 3 charts show the scale of the extreme energy crisis in Europe, where electricity prices have surged 1,000% above normal levels

Harry Robertson Tue, August 23, 2022 at 7:31 AM

  • Europe is in the grip of an energy crisis, with Russia squeezing natural gas supplies as tensions run high over Ukraine.
  • Natural gas and electricity prices are trading more than 1,000% higher than the levels seen in the 2010 to 2020 decade.
  • Fears that the energy crisis will trigger a deep recession have pushed the euro to its lowest level in 20 years.

Europe is in the middle of a severe energy crisis, as the prices of natural gas and electricity soar to what one analyst has called “absurd” levels.

The price of natural gas — a fossil fuel vital to the European Union’s economy — has spiraled higher in recent weeks, with Russia squeezing flows to Europe as tensions run high over Ukraine.

The surge in natural gas has driven electricity prices to record highs, piling the pressure on consumers and businesses across the EU. German baseload power, the benchmark European electricity price, is trading more than 1,400% above its average in the 2010s.

Here are three charts that underline the scale of Europe’s energy crisis.

Chart, line chart

Description automatically generated

At the heart of Europe’s energy woes is a natural gas price that will not stop rising. Its run-up this year has been driven by Russia’s move to slash the flow of natural gas through the Nord Stream 1 pipeline to Germany to just 20% of capacity.

Prices spiked as high as 290 euros ($288) per megawatt hour on Monday and closed at a record after Russia said it would halt flows for three days at the end of August to carry out repairs on Nord Stream 1.

Dutch TTF natural gas futures, the benchmark European price, fell slightly to trade at around 272 euros on Tuesday — but that was still more than 1,200% above the average price seen in the 2010s.

Natural gas is central to the European economy, given the EU got more than 20% of its energy from the fossil fuel before the Ukraine war. It’s used to heat homes, generate electricity and in various industrial processes.

As natural gas prices have soared, so has the cost of electricity, which is often generated by burning the fuel.

Chart, line chart

Description automatically generated

The German baseload year-ahead power, Europe’s benchmark electricity price, catapulted above 700 euros per megawatt hour on Monday for the first time. It traded at around 640 euros Tuesday — more than 1,400% above the average price seen in the 2010 to 2020 period.

“As we kick off another week, we now have another shutdown of Russian gas deliveries through the Nord Stream 1 pipeline,” said John Hardy, head of FX strategy at Saxo Bank.

“This has spiked forward natural gas and power prices to even more absurd levels than the already dire levels of late.”

Analysts now expect the eurozone economy to tip into a recession in the coming months, as energy prices cause consumers and businesses to cut back sharply on their spending and normal activities.

The euro has cratered to its lowest level in 20 years against the dollar, in a sign of the economic woes facing the continent.

Chart, line chart

Description automatically generated

It has dropped around 12% this year to below $1, from $1.14 at the start of January. As of Tuesday, the euro traded at around $0.993, its lowest level since the fall of 2002.

“We expect the sharpest contractions in Germany and Italy – i.e. countries with large manufacturing sectors that are highly reliant on Russian gas,” said Credit Suisse economist Veronika Roharova in a recent note.

Russia’s gas shutoff is forcing Germany’s energy giant Uniper to fire up a mothballed coal-fueled power plant

Zahra Tayeb Tue, August 23, 2022 at 3:09 AM

  • German utility giant Uniper said it will restart a coal-fired power plant to generate electricity.
  • The plant will provide power from Monday to April next year, after Russia halted gas flows to the country again.
  • Europe is facing a major energy crisis and the switch to coal signals supplies are under pressure.

Uniper’s switch to coal, after ending operations in 2020 as past of its decarbonisation plan, highlights what one analyst has called a “scary” energy shortage in Europe as Russia cuts gas supply and heatwaves drive up demand.

The European energy crisis has left several regional leaders fearful about winter as supplies get squeezed, and some officials have accused Moscow of weaponizing energy in retaliation for Western sanctions imposed after Russia invaded Ukraine.

European prices of natural gas soared almost 20% to fresh record highs after the Nord Stream 1 pause news, and the energy worries are unsettling other financial markets.

The move to revive Heyden 4 was prompted by a German law passed to ensure energy security, Uniper said. The law sets out a ban on the use of gas and calls for a switch to coal power plants to generate electricity.

The Petershagen plant could keep producing electricity for another year beyond next April if the law is extended, Uniper said.

The “envisaged operation of Heyden 4 will be restricted due to limitations on the rail transportation capacity of hard coal to the site, which might get lifted once additional transportation capacity becomes available,” it noted.

German economy minister rules out keeping nuclear plants running to save gas

Sun, August 21, 2022 at 6:14 AM

BERLIN (Reuters) -German Economy Minister Robert Habeck ruled out on Sunday extending the lifespan of the country’s three remaining nuclear power plants in order to save gas, saying it would save at most 2 percent of gas use.

These savings were not sufficient to be worth reopening the debate about the exit from nuclear energy given the consensus on the topic, he said during a discussion with citizens at the government’s open-door day.

“It is the wrong decision given the little we would save,” said Habeck, a member of the Greens party, which has it roots in the anti-nuclear movement of the 1970s and 80s.

Separately to the debate over gas savings measures, Habeck said he was open to extending the lifespan of one nuclear power plant in Bavaria if a stress test showed this was necessary to ensure the stability and supply of the electricity network in winter, he said.

The fact that Germany is having to supply France with electricity due to a drop in nuclear output is another factor at play.

German Chancellor Olaf Scholz said the result of the stress test should come towards the end of the month, or the beginning of next month – and only then would a decision be made.

The situation in France, where nearly half its reactors are offline because of corrosion problems and maintenance, showed how problematic the technology was though, he said.

New plants were so expensive that they pushed up electricity prices unlike renewable energies, he said.

By user

Leave a Reply

Your email address will not be published.