Unless you've been living under a rock for the past few months or so, you certainly know of the Russian-Ukrainian conflict and the myriad disasters it can effectively bring to the world. The big elephant in the room, though, is the possible energy shortage during the upcoming winter and how that can add insult to the injury of the already ill economy...After news emerged that the European Union was discussing a price cap on Russian gas and oil imports, President Putin took the "once unthinkable" decision of completely cutting off gas supplies to Europe via NORD1. Nobody can tell when or if Russia will resume exporting gas to Europe and, so far, NORD1 seems to have been set aside alongside its younger brother NORD2
This begs the bitter question of whether or not we will all face a very cold winter and what measures the European Union has up its sleeve to respond.
Ever since Putin started the war, Europe found itself between the rock of getting along with Russia and the hard place of opposition to it. The former means giving principles up while the latter implies painful economic scars. In the Eurozone, Electricity prices have skyrocketed to outrageous territories of €600 per Megawatt hour. That’s up from under €100 at the beginning of the year (the depth of last winter).
And since energy is such an important component in all industries, goods and services are having their share of the massive rise too. This is the ideal recipe to hike inflation which, according to Eurostat, was 9.8% in July 2022 up from 2.5% just a year earlier!
It doesn't look any better in other regions in the world either, In the UK, the energy regulator has raised its price cap a whopping 80% and inflation there broke 10.1% with many expecting the worse is yet to come...
As you can see, most of these issues and disruptions boil down to one thing and that is Energy. That is why European countries are imposing unprecedented measures to limit consumption and fill up their gas caves in response to lower Russian gas deliveries. Those measures to limit energy use have been quite telling. For example, if you are wandering the German streets, you might be surprised by the darkness and quietness there. Street lights are dimmed, facades of historic buildings are not illuminated and most of the fountains are not operating. The economy minister has also urged citizens to take shorter showers and limit the use of air conditioning. In Spain, an official law was approved by parliament to reduce the consumption of electricity. The new law banned night lighting and barred businesses and public buildings from setting temperatures at lower than 27c in summer or heating temps at higher than 19c in winter. Even The EU is following suit by putting out a plan to cut gas consumption by 15% for the entire continent before next spring. Other hard efforts have been made to ensure getting large shipments of liquified natural gas (LNG) from suppliers such as the US and Qatar. But the bitter truth is that these shipments are both expensive and limited which might spark competition against Asia, the world’s biggest importers of LNG, for getting those very demanded shipments...
Weaning off Russian gas is no easy after all!
As always the case with most major crises, there is no single solution that can end the whole thing at once. If anything, it would be an early end to the war in Ukraine which could mean that energy disruptions ease, but let's be realistic this is not going to happen any time soon. Europe knows that and that's why there is a series of minor and major moves afoot to pull the upcoming winter off without being frozen. And to that end, France decided to restart its 56 nuclear reactors in order to help the country through the broad energy crisis. Germany which had long adopted a strict policy of phasing out nuclear power has recently backed off its decision to shut down the last two working plants that were due to be mothballed in December. These two plants will be on standby and ready for use "if it was deemed necessary."
Other moves are being taken by other European countries to restart coal plants in order to make up for the lack of electricity supplies. Yes, this may seem hypocritical given the long-established approach adopted by Europe leaders of "combating dirty energy" but when the choice is between dirty energy or no energy, the former is usually chosen...
Well, according to Ursula von der Leyen, the president of the European Commission, "the share of Russian pipeline gas in the EU's total imports has plunged from 40% before the war to 9% today." Such a great leap toward complete "emancipation" from Russian dependency
Germany, in turn, announced that its reservoirs of natural gas are filling up faster than planned. France also joins to announce that it will have enough reserves to provide countries (notably Germany) with natural gas when the work on restarting nuclear plants is done. And speaking of gas, it seems that what is bad news for one nation can be good news for another. And this might be the case with Norway which announced with the EU a “strengthen energy cooperation". Despite the popular opinion that Russian gas imports cannot be easily replaced, Norway insists that it has significant amounts of untapped oil and gas resources which can replace Russian ones in the long term. According to Norwegian Minister of Petroleum and Energy Terje
If Europe commits to buying, Norway can replace more Russian gas source
So...back to the one-million question...Will it be a cold winter or a warm winter? I can't claim to have the answer, but I can only hope for the latter...
What do you guys think?
I'm keen to hear your opinions and thoughts...
