Europe's energy crisis may get a lot worse - 0 views
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It was only at the end of April that Russia cut gas supplies to Poland and Bulgaria, the first two victims of its energy-pressure campaign. But overall gas shipments are at less than one-third the level they were just a year ago. In mid-June, shipments through Nord Stream 1 were cut by 75 percent; in July, they were cut again.
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“It is wartime,” Tatiana Mitrova, a research fellow at Columbia, told her colleague Jason Bordoff, a former adviser to Barack Obama, on an eye-opening recent episode of the podcast “Columbia Energy Exchange.”
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I think there’s been a gradual and growing recognition that we are headed into the worst global energy crisis at least since the 1970s and perhaps longer than that.
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“This is something that European politicians and consumers didn’t want to admit for quite a long time. It sounds terrible, but that’s the reality. In wartime the economy is mobilized. The decisions are made by the governments, not by the free market. This is the case for Europe this winter,” she said, adding that we may see forced rationing, price controls, the suspension of energy markets and shutdowns of whole industrial sectors. “We are not actually talking about extremely high prices, but we are talking about physical absence of energy resources in certain parts of Europe.”
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I think you would see Russia continue to restrict gas exports and maybe cut them off completely to Europe — and a very cold winter. I think a combination of those two things would mean sky-high energy prices.
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Europe has been finding all the supplies that it can, but governments are realizing that’s not going to be sufficient. There are going to have to be efforts taken to curb demand as well and to prepare for the possibility of really severe energy rationing this winter.
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If things become really severe this winter, I fear that you could see European countries start to look out for themselves rather than one another.
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I think we could start to see governments saying, “Well, we’re going to restrict exports. We’re going to keep our energy at home.” Everyone starts to just look out for themselves, which I think would be exactly what Putin would hope for.
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it would be wise to assume that Russia will use every opportunity it can to turn the screws on Europe.
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It’s increasingly clear that Vladimir Putin is using gas as a weapon and trying to supply just enough gas to Europe to keep Europe in a perpetual state of panic about its ability to weather the coming winter.
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governments will have to ration energy supplies and decide what’s important.
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Since Russia invaded Ukraine and maybe until very recently, I’ve had the sense that the European public and the public beyond Europe, as well as policymakers, have been a little bit sleepwalking into a looming crisis.
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here was some unrealistic optimism about how quickly Europe could do without Russian gas. And we took too long to confront seriously just how bad the numbers would look if the worst came to pass.
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I think there was continued skepticism that Putin would really cut the gas supply. “It might be declining. It might be a little bit lower,” people thought. “But he’s not really going to shut off the supply.” And I think now everyone’s recognizing that’s a real possibility.
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Putin has the ability to do a lot of damage to the global economy — and himself, to be sure — if he cuts oil exports as well.
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There’s no extra oil supply in the world at all, as OPEC Plus reminded everyone by saying: No, we’re not going to be increasing production much, and we can’t even if we wanted to.
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For all the talk about high gasoline prices and the rhetoric of Putin’s energy price hike, Russia’s oil exports have not fallen very much. If that were to happen — either because the U.S. and Europe forced oil to come off the market to put economic pressure on Putin or because he takes the oil off the market to hurt all of us — oil prices go up enormously.
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That’s because there’s just no extra supply out there today at all. There’s a very little extra supply that the Saudis and the Emiratis can put on the market. And that’s about it. We’ve used the strategic petroleum reserve, and that’s coming to an end in the next several months.
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it depends how much he takes off the market. We don’t know exactly. If Russia were to cut its oil exports completely, the prices would just skyrocket — to hundreds of dollars a barrel, I think.
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We’re heading into a winter where markets might simply not be able to work anymore as the instrument by which you determine supply and demand.
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if prices just soar to uncontrollable levels, markets are not going to work anymore. You’re going to need governments to step in and decide who gets the scarce energy supplies — how much goes to heating homes, how much goes to industry. There’s going to be a pecking order of different industries, where some industries are deemed more important to the economy than others.
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a lot of governments in Europe are putting in place those kinds of emergency plans right now.
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if the worst comes to pass, governments will, by necessity, step in to say: Homes get the natural gas, and parts of industry get dumped. Probably they would set price caps on energy or massively subsidize it. So it’s going to be very painful.
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Worryingly for the European economy, this may mean that factories that can’t switch fuels will go dormant.
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Today, before winter comes, gas prices in Europe are around $60 per million British thermal units. That compares to around $7 to $8 here in the United States
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if the worst comes to pass, the market, as a mechanism, simply won’t work. The market will break. The prices will go too high. There’s just not enough energy for the market to balance at a certain price.
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don’t forget, the amount of liquid natural gas that Europe is importing today — Asia is competing for those shipments. What happens if the Asia winter is very bad? What happens if China and others are willing to pay very high prices for it?
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I think we’re in a multiyear potential energy crisis.
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one thing that hasn’t gotten enough attention and that I worry most about is the impact this is having on emerging markets and the developing economies, because it is an interconnected market. When Europe is competing to buy L.N.G. at very high prices, not to mention Asia, that means if you’re in Pakistan or Bangladesh or lower-income countries, you’re really struggling to afford it. You’re just priced out of the market for natural gas — and coal. Coal is incredibly expensive now,
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I think that that is a real potential humanitarian crisis, as a ripple effect of what’s happening in Europe right now.
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right now, the price of gas in Europe is about four times what it was last year. Russia has cut flows to Europe by two-thirds but is earning the same revenue as it did last year. So Putin is not being hurt by the loss of gas exports to Europe. Europe’s being hurt by that.
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this situation could last for several years.
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Could the energy crisis bring about a change of heart, in which European countries withdraw some of their support or even begin to pressure Ukraine to negotiate a settlement? Is it possible that could even happen in advance of this winter?
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you would imagine that, over time, when you don’t see Ukraine on the front page each and every day, eventually people’s attention wanes a bit and at a certain point the economic pain of high energy prices or other economic harms from the conflict reach a point where support may start to fracture a bit.
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Whether that reaches a point where you start to see the West put pressure on Ukraine to capitulate, I think we’re pretty far away from that now, because everyone recognizes how outrageous and unacceptable Putin’s conduct is.
