Europe is hoping for a mild winter amid increasing costs
Europe is bracing for a tough winter as an energy crisis that’s been years in the making leaves the continent relying on the vagaries of the weather.
Faced with surging natural gas and electricity prices, countries from the U.K. to Germany will need to count on mild temperatures to get through the heating season. Europe is short of gas and coal, and if the wind doesn’t blow, the worst-case scenario could play out: widespread blackouts that force businesses and factories to shut.
The unprecedented energy crunch has been brewing for years, with Europe growing increasingly dependent on intermittent sources of energy such as wind and solar while investments in fossil fuels declines.
Also, environmental policy has pushed some countries to shut their coal and nuclear fleets, reducing the number of power plants that could serve as backups during shortages.
“It could get very ugly unless we act quickly to try to fill every inch of storage,” said Marco Alvera, CEO of Italian energy infrastructure company Snam SpA. “You can survive a week without electricity, but you can’t survive without gas.”
Energy demand is rising from the U.S. to Europe and Asia as economies recover from the global pandemic, boosting industrial activity and fueling concerns about inflation. Prices are so high in Europe that two major fertilizer producers announced they were shutting plants or curtailing production in the region.
And it’s not just businesses. Governments are also concerned about the blow to households already contending with higher costs of everything from food to transportation. As power and gas prices break records day after day, Spain, Italy, Greece and France are stepping
in to protect consumers from inflation.
“It will be expensive for consumers, it will be expensive for big energy users,” Dermot Nolan, a former CEO of U.K. energy regulator Ofgem, said in a Bloomberg TV interview. “Electricity and gas prices are going to be higher at home than everybody
would want, and they are going to be higher than they have been for about 12 years.”
Europe’s gas prices have more than tripled this year as top supplier Russia has been curbing the additional deliveries the continent needs to refill its depleted storage sites after a cold winter last year. It’s been hard to get hold of alternative supplies, with North Sea fields undergoing heavy maintenance after pandemic-induced delays and Asia scooping up cargoes of liquefied natural gas to meet rising demand there.
Higher gas prices boosted the cost of producing electricity as renewables faltered. Low wind speeds forced European utilities to burn expensive coal, depleting stockpiles of the dirtiest of fossil fuels.
Europe now needs favorable weather. While forecasters say temperatures are unlikely to plunge below normal next month, expectations can always change.
Similar weather forecasts did not materialize last year, resulting in bitter temperatures that sent LNG prices in Asia to a record in January.
“It may happen again,” said Ogan Kose, a managing director at Accenture. “If we end up having a very cold winter in
Asia as well as in Europe, then we may end up seeing a ridiculous spike in gas prices.”