Energy crunch in Europe eases — for now
Drop in power prices offers some relief, but uncertainty persists
FRANKFURT, Germany — Natural gas and electricity prices in Europe have plunged from summer peaks thanks to mild weather and a monthslong scramble to fill gas storage ahead of winter and replace Russian supplies during the war in Ukraine. It’s a welcome respite after Russia slashed natural gas flows, triggering an energy crisis that has fueled record inflation and a looming recession.
Yet experts warn it’s too soon to exhale, even as European governments roll out relief packages for people struggling with high utility bills and work on longer-term ways to contain volatile gas and electricity prices that have shrunk household budgets and forced some businesses to shut down.
Uncertainties include not only the weather but how responsive people will be to appeals to turn down their heating and how much demand there will be from Asian economies for scarce energy supplies. And the war a few hours east is a cauldron of possible unpleasant surprises that could cut energy supplies needed for electricity, heating and factory work and send prices sharply higher.
Persistent unknowns are leaving energy-intensive businesses jittery. They are appealing to governments to help them and their customers weather the energy storm so that disruptions in supplies of everything from glass to plastics to clean hospital sheets do not cascade through the economy.
“We must remember that we are still in a tense situation — an economic war between the European Union and Russia in which Russia has weaponized energy supplies,” said Agata Loskot-Strachota, an energy policy expert at the Center for Eastern Studies in Warsaw, Poland.
The good news is natural gas prices on Europe’s TTF benchmark fell Monday below 100 euros per megawatt-hour for the first time since June, a 70 percent drop from late August highs of nearly 350 euros per megawatt-hour. Electricity prices also fell.
While analysts say lower gas prices are allowing European fertilizer producers to restart operations, there’s no sense of relief for business owners like Sven Paar. His commercial laundry in the German town of Wallduern will use around 30,000 euros worth of natural gas this year to run 12 heavy-duty machines that can wash eight tons of hospital and hotel bedsheets and restaurant tablecloths each day.
His local utility says the bill is rising to 165,000 euros next year. On top of that, Paar says he’s unsettled by a lack of clarity from the German government on whether laundries like his would be considered essential to the economy and spared cutbacks in case of state-imposed rationing. Reports that the utility regulator is working on sorting out the question aren’t enough.
“The problem is, everyone has heard something, and just hearing something doesn’t bring me any planning security,” he said. A letter he sent to the regulator went unanswered.
“That’s the problem, you hope every day that you don’t get a call from someone that says, ‘Tomorrow you aren’t getting any gas,’ ” he said.
Helping ease the possibility of rationing is Europe’s underground storage getting filled to 94 percent, compared with 77 percent at this time last year, which energy expert Loskot-Strachota called “quite a success.” A big assist has come from mild weather across Europe, with Warsaw, for example, a relatively balmy 64 degrees Fahrenheit on Monday.
Germany, once heavily dependent on Russian gas, has filled storage to 97 percent of capacity, France to 99 percent, and Belgium and Portugal both to 100 percent. That was achieved by importing record quantities of liquefied natural gas, or LNG, which comes by ship from the U.S. and Qatar instead of by pipeline from Russia, and by increasing pipeline supplies from Norway and Azerbaijan.
Despite an abundance of LNG and falling prices, LoskotStrachota said the energy situation remains volatile. She warns that prices for gas to be delivered in December and the 2023 winter months are higher than prices now.
Whether households will join businesses in cutting back by lowering thermostats and turning off lights cannot be determined until the cold weather comes in earnest.
The market also is less flexible because gas reserves will be increasingly used as day-to-day base fuel for heating and generating electricity, rather than as a “swing” fuel during times of peak demand such as cold snaps.
“Every event, every problem, weather problem, Russia problem, becomes a factor which sends prices very very high,” Loskot-Strachota said. “I’m very happy that we’re in a calm situation now, but it is nothing that will last for the whole winter.”