Europe's Winter of Discontent - by The Economist - 14.07.22

The present heatwave engulfing Europe will seem like a distant memory before long according to The Economist. With temperatures set to plummet with the onset of winter, Europe faces a potential ‘gastastrophe’ unless concerted and determined measures are taken to address the problem now.


The markets are already smelling blood:


“Prices for delivery of gas this winter, at €182/mwh ($184/mwh), are almost as high as in early March, after Russia invaded Ukraine, and seven times their long-run level. Governments are preparing bail-outs of crippled utilities in France and Germany, and some investors are betting on which industrial firms will go bust later this year as rationing takes hold. While most of Europe’s politicians fail to level with the public about the hard choices that lie ahead, even grizzled energy traders used to wars and coups have started to sound worried.”


With Putin still in charge in Russia, the race has been on to access alternative supplies of liquified natural gas (lng).


“Until a few weeks ago it seemed as if Europe might escape the worst, helped by more lng cargoes from America and elsewhere. Gas demand is seasonal, so it is vital to build up reserves in the spring and summer. From a scary 26% in March, by June Europe’s gas tanks were over half-full and on track to hit 80% by November, the minimum needed to get through winter.


Now the picture is worsening again. Glitches at a Norwegian gasfield are partly to blame, as is the hot weather which creates demand for electricity to power air-conditioning. But the big problem is the flow of gas to Europe from Gazprom, Russia’s gas monopoly.


It was already running at about half the normal level and has dropped even further. Russia says that since July 11th, Nord Stream 1, an important pipeline, has been undergoing maintenance which will be completed by July 22nd.


But it has not compensated by increasing supply via alternative pipelines that pass through Ukraine. Because traders think Mr Putin is deliberately squeezing supply, prices for delivery in two winters’ time, in 2023-24, are four times the normal level.”


The ripple effects could be profound, as nation-states hoard gas for their own people and prevent it flowing across the continent. Which is why co-ordinated action is required involving maximising supply and rationing demand at least in the short term. By taking action now


“Europe will forever free itself from Russian energy intimidation. It will also have created a coherent continent-wide energy-security mechanism that will help accelerate the shift to cleaner energy. Europe has a habit of coming together during crises. It is time to do so again. If you are reading this in Paris or Madrid with the air-conditioning on, turn it down a notch.”


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Europe's winter of discontent - article for the Economist - 14.07.22
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