Prof. ST Hsieh
Director, US-China Energy Industry Forum
August 16, 2022
US politicians are used to the tactics of “spinning” to “explain” the “fact” in favor of him or his party. It is close to lying till Trump’s communication team created a new reality called “alternative facts.” It is worse than “lying” because not only they deny the existence of “whatever happened” but also publicly tell the world something never happened but suit their politics.
The following “explainer” is not as bad as providing “alternative facts” because it does include real data as well as plausible economic analysis. But the statement “supply disruption linked to Russia’s invasion of Ukraine that began on Feb. 24” and using the term “supply disruption” in particular are close to “spinning!”
Because the root cause of this energy crisis in Europe is the US led west “economic sanctions” against Russia after the war in Ukraine started on February 24, 2022. Specifically, the hastily implemented sanction measures against Russian energy were the reason for this “supply disruption.” These sanctions were close to a complete failure: while Europe has to scramble right now, energy shortage caused economic damages are already surfacing.
Rising energy bills in Europe is another ominous sign of the failure of sanctioning Russian energy, the burden of energy shortage is affecting almost every consumer and the impact is society wide. Things will only get from bad to worse by this winter, how to keep houses and office spaces warm? No doubt, economic output will be cutting down.
Further, these ill designed sanction measures against Russian energy have not impacted Russian negatively. In fact, Russian is still making billions of dollars every month after the war in Ukraine started because of higher energy prices globally. From this perspective, it seems that Russian will not even try to end the war in Ukraine.
As energy crisis deepens, EU seems let each member nation to manage this challenge without much collective planning or coordination. Per the reports of Kosovo’s announcement of drastic power cuts to a reversal on the same day, the situation is dicey.
The gas shortage is projected to last about two years, this outlook is particularly bleak for Europe. A simple question begs answer: why is the war in Ukraine still going on? May be when winter hits Europe, cooler heads will prevail.
Explainer-Why Europe faces climbing energy bills
Nina Chestney Mon, August 15, 2022 at 5:40 AM
A global surge in wholesale power and gas prices means households across Europe face much higher energy bills this year and beyond, with the region’s most vulnerable exposed to fuel poverty, consumer groups say.
WHY THE HIGH PRICES?
Energy companies pay a wholesale price to buy the gas and electricity they sell to consumers. As in any market, this can go up or down, driven by supply and demand.
Typically, prices rise in response to higher demand for heating and lighting in winter, and fall in summer.
Just before the war started, the German government halted the Nord Stream 2 pipeline that would have doubled the amount of Russian gas shipped to Europe and Russia in July reduced volumes pumped through Nord Stream 1 to 20% of capacity, citing maintenance issues.
The German government said this is a pretext used by Moscow to hit back against Western sanctions imposed over the Ukraine war.
French nuclear outages and a heatwave across Europe this summer have also boosted demand.
Benchmark European gas prices at the Dutch TTF hub have risen by nearly 350% year on year, while German and French front-year power contracts have leapt by 540% and 790% respectively.
HOW LONG COULD THIS LAST?
Many gas market analysts expect prices to remain elevated for the next two years or more.
Global competition for gas and coal this winter is expected to prevent prices from falling. Any more disruption to Russian gas supply, such as a full stoppage through Nord Stream 1, would support prices.
Although European countries are on track to refill gas storage sites to a minimum level of 80% by Oct. 1, an extra cold winter could deplete those reserves quickly.
WHY RETAIL PRICE RISES?
Many energy suppliers pass on higher wholesale costs to consumers through their retail tariffs. In Britain, for example, on a dual fuel bill (electricity and gas), the wholesale cost can account for 40% of the total.
Suppliers can buy energy on the wholesale market on the day of delivery, a day ahead and up to months or seasons in advance, as they try to predict when prices will be lower and how much to purchase to cover their customer needs.
If suppliers do not buy enough energy, they might have to buy more at a price that could be higher, depending on market movements.
The European Union in July asked its member states to reduce gas demand voluntarily by 15% this winter with the possible introduction of mandatory cuts.
Several European governments had already taken measures to drive consumption down before the announcement, such as laws on air conditioning and heating levels in public and commercial buildings.
Germany has moved to the second stage of a three-tier emergency gas plan. The third stage envisages supply being curtailed to industry.
It will also introduce a gas levy to distribute the high costs of replacing Russian gas among all end-consumers from October but this could see German energy bills rise by another 480 euros ($489.46) a year.
Governments have also announced measures such as subsidies, removing environmental levies or VAT from bills and price caps.
Britain, which relies heavily on gas for heating, introduced a price cap on the most widely-used energy tariffs in 2019 that sets a maximum charge per unit of energy and limits suppliers’ profits to 1.9%.
However, the cap is estimated to rise to over 4,200 pounds ($5,075.28) a year in January, up 230% on the year before.
WHAT CAN CONSUMERS DO?
Households account for 30%-40% of Europe’s gas demand. Some 80% of household gas demand is from heating while the rest is from hot water and cooking.
Usually demand is higher in the winter gas season, which runs from October to March.
According to Bernstein analysts, certain measures by households could reduce household gas demand by a third.
Turning a thermostat down by 1 degree to 19 degrees Celsius from 20C could reduce household gas demand by around 7%. Lowering the temperature by another one degree could reduce household gas demand by a further 7%.
Wearing a thick jumper at home during the winter season could deliver another 4% saving in household demand.
Delaying putting on the heating to November from October and/or stopping heating by February rather than March could save 3%-6%. Turning radiators off in unusued rooms, replacing shower heads with water efficient ones and only using boilers twice a day could save a further 7% of demand.
In Britain, the “Don’t Pay UK” campaign is calling for a reduction in energy bills to an affordable level and urges people to cancel their direct debit energy payments from October.
European Power Prices Reach Records as Industry Starts to Buckle
Todd Gillespie and William Mathis Tue, August 16, 2022 at 7:47 AM
(Bloomberg) — Europe’s benchmark power price surged above 500 euros ($509) for the first time, ratcheting up pressure on households and businesses as the worst energy crisis in decades looks set to persist well into next year.
German year-ahead electricity rose as much as 11% to 530.50 euros a megawatt-hour on the European Energy Exchange AG. That marks a gain of over 500% in the past year, driven predominantly by Russia’s moves to slash gas supply.
As energy costs continue to soar, industries from glassmakers to metal producers are feeling the pinch. Nyrstar became the latest firm to announce cutbacks on Tuesday, saying it will halt output at its Budel zinc smelter in the Netherlands — one of Europe’s biggest — at the beginning of September.
“The longer these price rises go up, the more this will be felt across the economy,” said Daniel Kral, senior economist at consultant Oxford Economics. “The magnitude of the increase and magnitude of the crisis isn’t comparable to anything in the past few decades.”
Countries across Europe are planning for possible power shortages this winter, with some considering rationing supplies to certain industries to ensure essential demand can be met.
While power is usually cheapest in summer, this year that’s not the case as supply concerns and strong demand combine to push prices higher.
Output from France’s nuclear fleet, traditionally the backbone of the region’s power system, is set to be the lowest in decades this year. That’s turned the nation into an electricity importer, leaving neighboring countries more reliant on gas to keep the lights on. French year-ahead power gained as much as 5.3% to a record 670 euros a megawatt hour amid thin trading.
At the same time, droughts and extreme heat across Europe have dried up rivers and reservoirs that are crucial to hydropower supply in some countries, starving the continent of another alternative to fossil fuels. Wind generation has also been below seasonal norms, pushing up costs for near-term power.
The prolonged dry spell has sapped water from the Rhine, a key waterway for the transport of fuels such as coal, with levels now so low that it may become effectively impassable for many barges. Alternative routes via road and rail are costly.
Power prices elsewhere in Europe also jumped Tuesday, with Nordic contracts reaching an all-time high.
Benchmark European gas futures for next month climbed as much as 14% to the highest intraday level since early March.
“We are already seeing industrial demand destruction as gas prices continue to rally,” said Kesavarthiniy Savarimuthu, an analyst at researcher BloombergNEF. And with Germany deciding this week to slap a surcharge on home gas consumers, “households will soon feel the pressure too.”
Kosovo starts power cuts as a result of energy crisis
Mon, August 15, 2022 at 1:24 AM
PRISTINA, Aug 15 (Reuters) – Kosovo’s energy distribution company, KEDS, said it would start power cuts at 8 a.m. on Monday because of a lack of domestic production and high import prices.
“Consumers will have six hours on and two hours off,” KEDS spokesperson Viktor Buzhala told Reuters. The company did not say when the cuts would end.
In early August, Kosovo’s parliament declared a 60-day energy state of emergency to help the government take whatever steps are necessary to cope with the crisis, including power cuts. (Reporting by Fatos Bytyci. Editing by Gerry Doyle)
Kosovo cancels power cuts for now after securing Albanian supplies
Mon, August 15, 2022 at 1:35 AM
PRISTINA (Reuters) -Kosovo’s energy ministry said on Monday it was cancelling planned power cuts for the time being as it had managed to secure electricity from neighbouring Albania, although it did not say how long the arrangement would last.
Albania, which is reliant on hydro power, is facing a drought and so also having to import energy.
Earlier, Kosovo’s energy distribution company, KEDS, started power cuts at 8 a.m. (0600 GMT) because of a lack of domestic production and high import prices.“Consumers will have six hours on and two hours off,” KEDS spokesperson Viktor Buzhala had told Reuters.
Kosovo and Albania have an agreement to share electricity, with Kosovars typically needing more in winter to heat their homes and Albanians more in summer for air conditioning.