Europe energy crisis is increasing at an alarming rate

The cost of Europe energy crisis will be $200 billion. Governments should support troubled energy companies if they care about electricity and heating. Ultimately, EU governments will pay this support out of taxpayers’ pockets. We are witnessing a domino-like fall in the energy sector, in which each domino piece is worth billions of euros. When the dust settles, the total costs necessary to save the European energy market this winter will easily exceed $200 billion. This estimate may be incorrect as it is only a rough estimate. However, minimal calculations have been done based on our current knowledge. In these calculations, the worst-case scenario, a colder-than-average winter and a complete cutoff of natural gas flow to Europe are not included.

Europe energy crisis 

Due to the covid pandemic, the world is experiencing the first truly Europe energy crisis. And as the International Energy Agency has warned for many months, the situation is especially perilous in Europe, which is at the epicentre of the energy market turmoil. The general public is particularly concerned about the months ahead. The European Union’s plans to cut its decades-long reliance on Russian gas without switching to cleaner fuels will cost it $200 billion more than it currently expects by 2030, research by sustainability group Global Witness and think-tank Ember found. Russia provides 40% of the EU’s natural gas with some members relying on it for up to 100% of their needs. 

The European Commission’s REPowerEu proposal contains a series of measures on energy storage and caps on prices and ultimately aims to cut the bloc’s dependence on Russia for gas. But even that plan would still cost around $200 billion more than it currently expects in eight years. “Decades of over-reliance on fossil gas has made Europe incredibly vulnerable to volatile prices whilst empowering Putin,” Tara Connelly, Senior Gas Campaigner at Global Witness, said. “Our analysis now shows the Commission has massively underestimated the cost to consumers of continuing to rely on gas.”

According to US government data, the EU accounts for 89% of all Russia’s gas exports. In just the two months following Russia’s invasion of Ukraine, the EU paid $46 billion to Moscow for fuel, according to a report by the Centre for Research on Energy and Clean Air. Global Witness and Ember said the billions of dollars the EU would spend on fossil fuels like natural gas would be better spent on transitioning to cleaner and affordable renewable energy. “As fossil gas prices are set to remain high and volatile for years, failing to drastically reduce Europe’s gas dependency would expose the Union and its citizens to exorbitant and avoidable financial risk,” they said. 

The two groups said focusing on energy savings and renewable energy like solar and wind would save the bloc $129.4 billion by 2030. They said the EU must increase its renewable energy target to at least 50% and energy savings target to 45%. “The devastating war in Ukraine has significantly increased the urgency for Europe to end its fossil gas addiction. Russia’s invasion has made the geopolitical, social and economic risks associated with dependence on imported fossil gas, particularly from Russia, even more obvious,” the groups said. The EU plans to phase out imports of Russian crude oil over the coming six months but has stressed the risks to its economy from cutting off Russian natural gas. The two groups said every 1 euro per megawatt hour ($1.05/MWh) of additional gas use equates to a roughly $3 billion invoice to the EU. This year alone, benchmark European gas prices have risen by over 250% to around 95.37 euros ($105) per megawatt hour, soaring to as much as 345 euros ($364) in early March after Russia’s initial invasion of Ukraine.

As Russia tightened its grip, what impacts were faced by Europe?

European energy extended a scorching rally as Russia tightened its grip on the region’s supply, further threatening the economy and critical markets. Natural gas increased as much as 14%, and prices are more than ten times higher than the usual level for this time of the year as supplies through a critical pipeline slumped. The surge is crippling Europe’s industrial output, driving up household bills and pushing inflation to the highest in decades. It’s also fed through to the power market, with German futures rising to unprecedented levels before easing on Wednesday.

Europe energy crisis reached a new level this summer as Moscow started progressively cutting flows through the Nord Stream pipeline to Germany, citing sanctions-related issues with a turbine. European leaders have accused Russia of weapon supply, even as severe restrictions were placed on the country for its invasion of Ukraine in late February. “We are in a situation in which gas is now part of Russian foreign policy and possibly part of its war strategy,” Klaus Mueller, president of Germany’s federal network agency, said Wednesday in an interview with Deutschland funk radio. 

According to German grid operators, supplies through Nord Stream fell to just 20% of capacity from Wednesday. The slump is already materializing in reduced deliveries to buyers, with Italy’s Eni SpA saying its shipments from Russia will be about 21% less on Wednesday than in recent days. Kremlin insiders privately say that the cuts are to pressure the West over sanctions.

Enmity with Russia became a nightmare for Europe

As Russian gas cutoffs upend European energy security, the continent is struggling to cope with what experts say is one of its worst-ever energy crises, and it could still get much worse. For months, European leaders have been haunted by the prospect of losing Russia’s natural gas supply, which accounts for 40 per cent of European imports and has been a crucial energy lifeline for the continent. That nightmare is becoming a painful reality as Moscow slashes its flows in retaliation for Europe’s support for Ukraine, dramatically increasing energy prices and forcing many countries to resort to emergency plans. Backup energy suppliers such as Norway and North Africa fail to step up. 

“This is the most extreme energy crisis ever in Europe,” said Alex Munton, a consultancy expert on global gas markets at Rapidan Energy Group. “Europe looks at the genuine prospect of not having sufficient gas when it’s most needed during the coldest part of the year.” “Prices have shot through the roof,” added Munton, who noted that European natural gas prices, nearly $50 per MMBtu, have eclipsed US price rises by nearly tenfold. “That is an extraordinarily high price to be paying for natural gas, and there is no immediate way out from here.” Many officials and energy experts worry that the crisis will only deepen after Nord Stream 1, the largest gas pipeline from Russia to Europe, is taken down for scheduled maintenance this week. Although the pipeline is supposed to be under repair for only ten days, the Kremlin’s history of energy blackmail and weaponization has stoked fears that Moscow won’t turn it back on, leaving heavily reliant European countries in the lurch.