“Come to your senses”: Europeans were overtaken by the horror of the energy crisis

The energy crisis in Europe is getting worse as Russia continues to curb natural gas exports, forcing European governments to spend billions of dollars to protect businesses and consumers from surges in bills as the region slides into recession.

As noted by CNN Business, European benchmark natural gas prices jumped 28% on Sept. 5 to reach €274 per MWh, the first day of trading since Russian energy giant Gazprom suspended flows through a vital pipeline indefinitely. Nord Stream-1.

Last year, this pipeline supplied about 35% of all Russian gas imports to Europe. But since June, Gazprom has reduced Nord Stream 1 flows to just 20% of its capacity, citing maintenance problems and a missing turbine dispute subject to Western export sanctions.

Moscow’s decision not to open the pipeline has raised concerns that the European Union may run out of gas this winter, despite successful attempts to fill storage tanks. Similar concerns in the UK led wholesale natural gas futures to rise by more than a third on September 5.

News of the gas pipeline’s indefinite closure sent the euro below $0.99 on Monday, its lowest level in 20 years. And the British pound hit its lowest level against the dollar since 1985 as traders worried that a potentially severe energy shortage could weigh on regional economic activity and government budgets.

Some countries are preparing to spend big money to try to limit the damage from the energy crisis.

The German government recently announced a €65 billion aid package to help households and businesses cope with rising inflation. Germany, Europe’s largest economy, is particularly dependent on Russian gas exports to power its homes and heavy industry.

Together with previous measures, the total amount of state support reaches 95 billion euros, which is equivalent to about 2.5% of Germany’s GDP, said Holger Schmieding, chief economist at Berenberg bank.

True, the aid package that the German coalition government announced recently is aimed primarily at supporting private households, and businesses feel left out, so many have lashed out at the government with harsh criticism.

Meanwhile, according to the German press, gas and electricity prices are skyrocketing, causing companies to go bankrupt. The media gives the example of a bakery owned by Tobias Platz from Eutingen, a village near Stuttgart in southwestern Germany.

“We are a classic artisan bakery where products straight from the oven are sold fresh on the counter in front of the store,” says Platz, a fourth-generation baker and owner of the family business. More recently, last year he completely renovated his shop; customers can now peek through a glass window into the back of the bakery and watch the bakery being made while they wait to be served at the counter.

But right now, Tobias Plaza isn’t sure if he can keep the family business going. At the end of August, he received a letter from a gas supplier. Instead of the previous 721 euros per month, now from October 1, 2022, he will have to pay 2588 euros for heating and hot water. This amount does not even include the cost of a baking oven. The square has a gas contract that ensures the supply of energy at the old price until the end of the year. But if gas prices continue to rise, the baker could well expect an annual gas bill of 42,000 euros just for the oven, up from the current 12,000 euros per year.

The baker posted a letter from his gas supplier on social media with the comment: “We want to share this with you so that you understand why we have to adjust the prices of our baked goods.. How will this end? Dear politicians in Stuttgart and Berlin, when will you finally wake up and come to your senses?”

This is just one example of how the energy crisis is affecting life in Europe – but according to the media, one in three companies in Germany alone faces an existential threat. Moreover, almost every tenth company in Germany has already reduced or even suspended production.

“Every day we receive emergency calls from businesses that are on the verge of shutting down production – partly because this huge increase in energy prices can no longer be offset by higher prices for customers,” Hans Peter, president of the German Confederation of Skilled Crafts, warned in a media interview. Wollseifer. According to his forecasts, there could be more bankruptcies in Germany now than during the COVID-19 pandemic.

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Liz Truss, who succeeded Boris Johnson as UK prime minister, is under enormous pressure to announce more aid to households and businesses as electricity bills skyrocket.

According to The Sunday Times, citing unnamed sources in the country’s finance department, Truss is considering a £100bn ($115bn) package to help deal with the rising cost of living, including supporting the payment of electricity bills.

If so, that would exceed the cost of a scheme in which the government subsidizes the wages of workers to prevent mass layoffs due to the pandemic by about £30 billion ($34 billion).

For months, the European Union has been piling up its energy reserves for the cold months when consumption spikes as they fear Russia will further cut gas supplies.

Moscow has already cut off gas supplies to a number of “unfriendly” European countries and energy companies due to their refusal to pay for gas in rubles, as the Kremlin insists, rather than in the euros or dollars specified in the contracts.

The recent announcement of Nord Stream 1 came just hours after the G7 countries agreed, due to events in Ukraine, to limit the price at which Russia can sell its oil.

As the energy confrontation escalated, the EU countries tried to quickly fill their storage facilities with gas. According to data from Gas Infrastructure Europe, the storage facilities are now 82% full, exceeding the 80% target set by country officials through November.

“Despite the serious risk of energy shortages, we still expect most of Europe to survive the cold season without having to shut down much of the industry due to large-scale gas rationing,” says Holger Schmieding.

However, according to CNN Business, European leaders know they need to do more to avoid massive hardship and limit the effects of a recession. EU energy ministers are frantically looking for ways to protect Europeans from the worst effects of rising energy prices. Initial ideas include a mechanism that decouples electricity prices from wholesale natural gas prices and an emergency loan offer for energy companies facing bankruptcy.

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The further, the more the understanding grows that Europeans can rely mainly on themselves. You can only partially count on help from overseas. Europe is entering the most insidious area in its quest to get away from Russian energy, and the US can only provide limited assistance, at least for now, Axios notes.

The Western response to the Ukrainian conflict has fundamentally upended global energy trade at a pace and scale not seen in decades. The stakes for Europe are higher than ever. Consumers are facing rising costs, and Europe’s energy-intensive industries are already in distress and are cutting back on production.

US President Biden promised that the United States would send more natural gas to the European Union to help Western allies cut Russian supplies. But, Axios stresses, both Europe and the US are facing physical constraints that limit the possibility of further growth in short-term stocks.

The United States basically uses all its available capacity to liquefy natural gas — the process needed to transport gas abroad — and Europe has limited infrastructure to actually accept such imports.

Before the start of the conflict in Ukraine, Russia provided about 40% of gas supplies to the EU. This flow has already fallen sharply, and narrow markets and geopolitical risks have led to a sharp increase in prices.

Earlier this year, the US and EU announced an agreement for additional supplies this year and a significant increase through 2030. The immediate goal seems fairly easy to achieve, in no small part because the US has shifted most of its Asian exports to European buyers.

But that intention may not work again this year, Axios warns. An expert on gas markets and geopolitics, Anna Mikulska, told the publication that although American companies have increased supplies of liquefied gas to Europe, competition for these supplies may intensify.

And anyway, this is still only a small fraction of European needs. Replacing all the gas that Europe received from Russia last year is a more difficult task, and it cannot be solved by supplies from any one country.

On the one hand, the U.S. gas industry is looking to continue to ramp up overseas shipments, with more export infrastructure already planned in the coming years. The industry is also demanding action, including faster approvals for export projects, pipelines to bring gas to the coast for liquefaction, and other measures.

On the other hand, these sectoral goals may conflict with climate policy on both sides of the Atlantic. President Biden is under pressure from environmentalists to limit the development of fossil fuels. EU countries are already making attempts to quickly and permanently phase out Russian coal, gas and oil, not only by diversifying suppliers, but also by accelerating the phase-out of these sources.

This means complex dynamics when it comes to developing new import infrastructure and pipelines in Europe. Projects are often based on long-term contracts, but officials are trying to stick to promises to cut greenhouse gas emissions significantly over the coming years and decades, even as countries need more gas now.

Major new gas infrastructure “often runs counter to what is acceptable in many countries by both government and society because they believe that natural gas should not be added to the system,” says Anna Mikulska in a comment to Axios.