Home ›› 11 Nov 2022 ›› Editorial
As cold weather comes to Europe, the energy prices are rising due to Russia’s war with Ukraine. Russia has been the main supplier of oil and natural gas for many European countries. Supplies have been limited because of the war and financial restrictions meant to punish Russia. As a result home and business owners from Bulgaria to Spain are worried about the cost of energy in the coming winter.
German leader Olaf Saholz viewed that when his country had been prepared during the Summer, it could go “bravely and courageously into the winter”. In Paris, a decision to reduce energy use meaning the lights on the Eiffel Tower would be turned off one hour earlier than normal time. Some nations are changing their gas suppliers.
Instead of buying gas from Russia, they have switched over to Norway and Azerbaijan and buying liquefied gas (LNG) from US. Some member countries are planning to raise taxes as energy companies are making money from high energy prices and are thinking of ways to control electricity markets so natural gas prices do not affect them much.EU believes to go for alternative sources like Wind power, Solar energy and Hydro power.
Europe is rolling out relief programmes and plans to shake up electricity and gas markets as it prepares for rising energy use this winter. Europe’s ability to get through the winter may ultimately depend on how severe the cold will be and what role China plays with import of LNG from US. Amid all the doom and gloom there is some good news for the European citizens that EU countries have been able to fill gas storage ahead of schedule.
The European Commission has asked member states to fill reservoir at least up to 80 per cent by 1st November, 2022. Most of the countries have already reached that level. According to Faith Birol, the Executive Director at International Energy Agency (IEA), even if Europe manages to fill its storage up to 90 per cent of capacity, there is still a heightened risk for gas supply disruption in the event of a wholesale Russian cut off.
Moreover, the risks are even higher if Russian supplies are stopped before Europe could ensure 90 per cent filling rate of its gas storage facilities. Russia has already reduced gas supplies to Europe. In mid-June/22 Russia cut gas supplies through Nord Stream gas pipeline and in July/22 stopped supplies through the submarine pipeline linking Russia to Germany through the Baltic Sea altogether.
Through this pipeline Nord Steam supplied 59.2 billion cubic meter of gas to Europe from Russia in 2021. This huge quantity of gas could not be available from other sources overnight. If this happens Europe may be in the hands of severe cold. The Director of Global Gas and LNG opined that the extreme energy crisis that has recurred in Europe is looking at the very real prospect of not having sufficient gas when it is most needed, which is during the coldest part of 2023.
EU leaders at the European Council meeting on 20-22 October/22 have reached a deal on energy need to accelerate and intensify efforts to reduce-energy demand, avoid rationing, secure supply and lower prices while preserving the integrity of the single market. It is estimated that natural gas storage in Europe is likely to be completely depleted by Spring 2023 and little import capacity will be available. As a result the scramble for gas crisis will erode Europe’s competitiveness in 2023.
EU is planning to accelerate the rollout of renewables. The Commission has proposed to increase the EU’s 2023 target for renewables from 40 per cent to 45 per cent. With the RE Power EU Plan, the total renewable energy generation capacity would increase by 15.83 per cent compared to present level. In order to prevent an energy crisis, it is also crucial that Europe consumes less energy by improving and modernizing energy infrastructure such as smart grid solution and smart cities.
It is also important that they replace old devices by energy efficient solutions, such as replacing traditional light bulbs by LEDs. Move by France is under process. Special levies on energy companies are expected to reduce the price cap from Euro 45 billion to Euro 12 billion. Euro 3 billion would be set aside to help French companies threatened by soaring prices of energy particularly those exposed to international competition.
In such context, people wanted to know, “what is causing the energy crisis in 2022”. The answer lies in two fronts. War between Russia and Ukraine has a negative impact forcing Russia to cut gas supplies. The other one is, as countries began to recover from the COVID-19 pandemic, demand for gas started to increase which could not be met due to shortage in supply causing gas prices to rise in 2021.
So, there would be a question, whether Europe could survive without Russian gas during the incoming winter. According to European leaders it would be tough but yes and it is not impossible. Replacing 130 billion cubic meter of natural gas imports from Russia within a year would tantamount to a gigantic challenge.
A critical part of EU’s plan to wean itself off Russian energy is to increase purchases of liquefied natural gas from other producers. But the EU is not yet equipped to receive enough of the fuels to replace Russian gas entirely. In the second half of 2021 the EU saw a significant increase in the wholesale energy prices. One of the main drivers was the surge in global demand as most countries emerged from the COVID-19 pandemic.
There is a question regarding Ukraine’s ability to supply electricity to Europe. Power exports from Ukraine will diversify Europe’s energy supply in the midst of Russia’s aggression, support energy security throughout the region, strengthen their trade relations with Western allies and provide much needed revenue to the Ukraine’s embattled energy sector.
In such a back drop can Europe be energy independent? Energy independence for the EU can only be achieved through a “Made in EU” policy that would promote only those energy sources that exist within their own border, but without the use of coal, it would be higher energy costs to consumers. On the other hand question arises with regard to solar energy. Solar energy is an excellent replacement to fossil fuels. In addition to emitting absolutely no CO2, solar electricity does not cause water pollution. Since traditional power plants require cooling, they use massive amount of water. Rooftop residential solar is a vital part of helping replacement of fossil fuel, and combating climate change. It is vital to replace fossil fuels, because they currently produce the majority of world’s energy.
Although the environmental hazards of burning coal and fossil fuels are widely known, the global community has been slow to adopt solar energy and other alternative power sources on a broad scale. Converting to solar was once written off as a radical shift especially since fossil fuel industries were well established and dominate global energy market.
However, solar power now has become increasingly cost effective and technology efficient. It seems not only possible but actually probable that the world will make a dramatic shift to green technologies like solar in the coming years.
Against such background the EU has turned to Azerbaijan, signing an MOU on strategic energy cooperation. EU-Azerbaijan cooperation is extremely important and the South’s Gas Corridor becomes a much more important pillar on the European gas markets. Azerbaijan plans to supply 11billion cubic meter of gas to Europe in 2023 amidst energy crisis and impending winter.
Even with gas storage filled up to capacity, the region’s energy security remains precarious with blackout and gas rationing still possible in the months to come in the event of further supply shocks and an exceptionally cold winter. Even with gas stores at least 90 per cent full, the bloc is likely to face supply disruption early next year, if Russia decides to cut off remaining gas deliveries.
CEO of Gazprom said that there was ‘no guarantee’ that Europe would survive the coming winter with its current reserve. According to his assessment Germany’s stocks would last only 10 weeks’ demand. Replenishing those stocks next year is already looming as Europe’s next big test. According to IMF Europe’s energy crisis is not a ‘transitory shock’ and the upcoming winter would be a major challenge in 2023.
Europe plans to cut consumption of gas by 15 per cent over the next five months rebuilding stocks next summer with restricted access to cheap Russian gas would be a ‘bigger ask’ than in 2022 viewed by head of gas analytics Independent Commodity Intelligent Service to CNN. According to him this was just the beginning. On the other hand it was reported by CNN that China’s demand for LNG would cause a challenge for Europe’s ability to attract LNG cargos next year. Oil supply could be tight, despite expectation that global demand growth will be slow.
OPEC has decided to slash oil production by 2 million barrels per day starting November/22. To help household and business against painful rise in energy bills European governments have long committed euro 553 billion to ease living cost. But how long can it be sustained if the prices remain high. Adopting different policies that prevented the pass through of high energy prices to consumers is an expensive gamble that is doomed to fail if wholesale energy price will stay high in the coming months/years.
The writer is former Director General, EPB. He can be contacted at hassan.youngconsultants@gmail.com
