Energy prices are through the roof across Europe as demand is increasing in the course of the new coronavirus pandemic and supply is becoming scarcer. In the wake of the global economic standstill, energy production has plummeted as industries shut down, people stayed indoors, and demand for electricity and fuel plummeted. Now that the world is returning to work and returning to the “new normal” the energy needs are back in vain, but the energy supply is simply not there.
Europe’s leading natural gas benchmark, the Dutch one Title transfer option, reports that prices skyrocketed from 16 euros per megawatt hour earlier this year to 75 euros by mid-September, an increase of more than 360%. Italian officials have warned citizens to expect a 40% increase in their bills in the coming weeks and months. Spain has agreed to send € 100 payments to over 5.8 million low-income households and has sent a letter to Brussels urging the European Union (EU) to take comprehensive action.
And then there is Russia. Almost half of the pure natural gas imports into the EU come from the great white north, which makes Europe highly dependent on the Kremlin for its energy security. This dependency is a major reason Europe is now facing an energy crisis as Russia has not increased its exports to the EU given the increased demand for natural gas. For one, Europe competes with Asia for limited energy resources as both continents come back to life when pandemic restrictions ease. So far, the markets seem to favor Asia for both economic and strategic reasons.
There is much speculation that this is a strategic decision by the Putin administration to push through the opening of the controversial Nord Stream 2 pipeline. The 1,230-kilometer pipeline, which runs under the Baltic Sea to connect Russia and Germany, has been completed but is not yet operational. The project has received a lot of criticism for “maintaining the bloc’s dependence on fossil fuels and expanding President Putin’s geopolitical influence”. Euronews. And now Europe’s dependence on Russia has been greatly reduced by the current energy crisis and the calming of the Kremlin and the opening of a new access point for urgently needed natural gas can make the Nord Stream 2 look a little more attractive.
Russia is not just playing hard to come by with natural gas. Since Europe’s troubled energy markets are trying to import every imaginable form of affordable energy, electricity producers have also asked for Russian coal with little success. The EU has been working to wean itself completely off coal for years, and if this winter demand for the dirtiest fossil fuel suddenly skyrockets, the previously avoided source of fuel is likely to be extremely scarce, as delivery routes from Russia, the the third largest coal exporter in the world, were almost entirely diverted to Asia.
“If all European utilities switch to coal, there will be a huge increase in coal demand that Russia alone cannot meet in the short term,” said Natasha Tyrina, research analyst at Wood Mackenzie Ltd. said Bloomberg in this week. “This would also require supplies from other countries, for example from the USA, but the situation there is similar to everywhere else.”
As the cold winter months begin, Europe’s energy crisis will worsen and its reliance on Russia to keep the lights on will only increase. Asia is also facing an energy crisis this winter, which means that the whole world is burning more and more coal, while most countries have promised exactly the opposite. At a moment when countries are only just getting started with a green energy transition, and the United Nations are sounding a “Code red for humanity“In terms of climate change, this return to coal is an extremely worrying development that will hopefully be short-lived as even coal proves insufficient to alleviate supply shortages in the months ahead.
By Haley Zaremba for Oil Genealogie
More top readings from Oileli: