August 29, 2022
Bad news about energy crisis in Europe is getting worse day by day. But the most depressing prospect is “no end in sight” for years to come. The prolonged energy crisis in Europe will have global impacts, the White House is rightfully concerned. But how can the US help?
How does Europe get into such a bad shape in such a short time? Blaming the summer drought for the “perfect storm” is not justified because Europe has been the leader of fighting global climate change and advocated for green energy for years. Is their energy policy too green? May be so, many European nations including Germany are firing up retired coal fired power plants, just to get by for this winter.
The real policy blunder, or the cause of the “perfect storm,” is the ill conceived and badly managed sanctions against Russian energy because of the war in Ukraine. That policy caused “dwindling supplies and record prices” and it is solely responsible for this European energy crisis. So, this energy crisis in Europe is made by their inept political leaders. Blaming Putin for “weaponizing energy” is merely shading responsibility and meaningless as the war in Ukraine has no end insight and people are under fire as well as dying every day in Ukraine.
Now these same group of politicians are taking knee-jerking reactions to tame the energy crisis that they created by asking their people to sacrifice with the hope to avoid “civil unrest” which will force these politicians out of the office. However, no one will be able to solve such a mess in this cold winter.
It is unfortunate that the US with abundant shale oil and gas reserve as the largest energy producer in the world, the world largest LNG exporter really can not help the Europeans by this winter. The fact of life is that energy infrastructure needs capital investments and significant time to complete. Politicians quick thinking and fast words often are the real troublemakers.
The real challenge is whether this energy crisis — which could worsen during winter — reduces public and political support for sanctions on Russia. A key question is why no one is working on ending the Ukraine war as soon as possible? If it finally comes to the time when most Europeans do not support for sanctions on Russia anymore, what bargaining chips will be left for peace talk with Putin?
Europe moves toward wartime footing on gas usage
Amid a full-on energy crisis exacerbated by the war in Ukraine, European countries are taking a range of steps akin to wartime restraints to cut consumption,
Here’s a sampling:
- In Germany, landmarks including the Brandenburg Gate and Cologne’s magnificent cathedral will no longer be lit at night. Hot water is being shut off in public buildings, and Augsburg is even turning off some traffic lights.
- Spain is ordering shops and public buildings to shut off the lights at 10pm and banning air conditioning below 80 degrees Fahrenheit. Italy is also limiting air conditioning in schools and public buildings.
- France is forcing air-conditioned shops to keep their doors closed, and banning illuminated signs between 1am and 6pm.
- Yes, but: France gets 70% of its energy from nuclear power, putting it in a better position than Germany, which is shutting down its remaining nuclear plants.
- The U.K.’s energy regulator is raising the cap on household energy bills by a whopping 80%.
- The EU’s 27 member states agreed in July to voluntarily cut gas consumption by 15% between August and March. Mandatory cuts could be imposed if the energy supply situation worsens.
- Meanwhile… Norways’ Nordic neighbors are protesting Olso’s “nationalistic” decision to curb exports to protect its own supply.
What we’re watching: Whether the energy crisis — which could worsen during winter — reduces public and political support for sanctions on Russia.
Record prices, dwindling supplies, drought, and policy have sparked a perfect storm for European energy markets with ‘no end in sight’
Phil Rosen Mon, August 29, 2022 at 11:38 AM
- Europe’s energy crisis is worsening and Bank of America analysts say they see “no end in sight.”
- Supply constraints, weather, uncertainty from Russia, and Europe’s own policies have made a perfect storm.
- “This will be a multi-year challenge,” a portfolio manager told Insider.
It’s not just Russia’s weaponization of energy that’s hurting European markets. A perfect storm has hit the continent and led Bank of America analysts to conclude there’s “no end in sight” for the worsening energy crisis.
“Last week Europe awoke to a bitter truth: the energy crisis is here to stay,” Bank of America analysts wrote in a Monday note.
As natural gas prices soar, electricity prices have mirrored those gains. German baseload power, the benchmark European electricity price, is trading more than 1,400% above its average from 2010-2020.
“It’s going to take a few years to get enough infrastructure in place to get Europe in a spot where natural gas prices could be considerably lower,” Rob Thummel, portfolio manager at energy investment firm Tortoise, told Insider. “The futures curve still has very high prices well into next year.”
Weather concerns
As if soaring prices weren’t trouble enough, weather has also emerged as an unpredictable variable in the crisis.
Declining river levels in Europe — Germany’s Rhine River, in particular — have led to added barge traffic, BofA analysts said.
Extreme heat waves have hit water levels throughout the summer, which limits shipments of coal and other refined products, and also curtails hydro-electric power generation.
“Unfortunately, several nuclear reactors have also suffered due to low river levels, which have limited their ability to cool reactor cores and forced them to dial back operations just when their power is needed most,” the analysts wrote.
“The near-term concern is whether Europe runs out of natural gas to heat homes during the winter,” Thummel said, echoing UBS’s forecast that a recession is a likely outcome for Europe.
Alternative energy and policy
With dwindling resources, at-risk nuclear power capacity, and soaring energy costs, policymakers are moving to revive coal power plants after spending several years actively shutting down coal activity for climate initiatives.
“Before the war, Europe had wanted to be a leader in decarbonizing, and that’s worked out to a certain extent with wind and solar, but they made a choice to place significant reliance on Russia,” Thummel said.
He noted that, after years of under-investment, coal is more expensive now and harder to access. But Europe has little choice other than to fire up old plants because that offers a quicker solution than trying to build entirely new natural gas facilities.
“They didn’t build the infrastructure to import LNG from elsewhere like the US, and now they’re stuck relying on an unstable source,” he said.
In his view, Europe will require several years to build up the infrastructure to get out of the energy crisis.
‘No end in sight’
To Thummel, the biggest two variables to watch are whether Russia decides to fully cut off natural gas supplies to Europe, and how severe the cold weather is during winter.
But even if Europe can build up its energy stockpiles enough to endure winter without a snag, nations will then have to play-catch up for years to come, he added.
Bank of America maintains a similarly bleak outlook: “With the war in Ukraine becoming increasingly entrenched, the European energy crisis seems to have no end in sight.”
White House Concerned About Energy Shortage Threat in Europe
Akayla Gardner Mon, August 29, 2022 at 2:29 PM
(Bloomberg) — The US is concerned about an energy shortage in Europe and will work to alleviate that potential threat as the European Union faces soaring power prices ahead of winter, a top White House aide said.
“We’re concerned about potential energy shortages in Europe as the winter approaches,” National Security Council spokesman John Kirby said Monday. “This is something we’re going to stay focused on as the fall turns to winter, and we’ll be latched up with allies and partners to try to do what we can to alleviate any shortages coming through.”
On Monday, European Commission President Ursula von der Leyen said the bloc is considering urgent steps to ease the rise in prices, eventually seeking to break the link between gas and the cost of electricity.
European nations are also moving to encourage reduced consumption, and the EU is convening an emergency meeting of energy ministers on Sept. 9.
US President Joe Biden in March set up a joint task force with the EU focused on expanding energy suppliers to European nations in March. Kirby said the US would “continue to work with distributors, and energy companies around the world, to try to alleviate whatever shortages that might be in place, or might be coming going forward.”
The Biden administration, though, is walking a difficult line in encouraging expanded energy resources for Europe while also maintaining adequate supplies for US consumers.
Energy Secretary Jennifer Granholm earlier this month wrote to refiners, including Exxon Mobil Corp., Valero Energy Corp., and Phillips 66, warning that the administration is considering “emergency measures” to address fuel exports if supplies of gasoline and diesel fuel remain at low levels in the Northeast. US officials say they are not considering export controls.
Kirby said he was confident of Europe’s commitment to supporting Ukraine, despite concerns about energy prices.