A wave of panic is sweeping Europe this winter over possible shortages of gas to heat and light homes. But the energy crisis could linger into the spring and hit industries hard.
The flow of the Nord Stream 1 gas pipeline connecting Russia to Europe has been reduced to only 20% of its capacity since this summer. The price of natural gas per megawatt hour fell from 40 euros in July 2021 to 300 euros this week*. Moscow is using the gas weapon to pressure the continent on which it is most dependent, in response to economic sanctions adopted by European countries since the start of the Russian offensive in Ukraine.
Europeans are preparing to do without Russian gas – which accounted for 40% of their imports before the war – much faster than they expected. Gazprom’s announcement that it will shut down Nord Stream 1 from August 31 to September 2 for maintenance has further raised concerns among European countries. Union leaders are scrambling to fill their gas tanks at all costs in anticipation of winter, and are betting on lower consumption. Member states agreed in July to voluntarily reduce their gas consumption by 15%. In Switzerland,.
Prolonged deficit risk
“Will we have gas cuts this winter? Between now and winter, will we get enough gas from different countries? That’s the big question we’re asking at the moment”, points out Laurent Horvath, Energy geo-economist, guest on the show. “We know that winter is going to be complicated. (…) Gas supply is like a canister: you have a big hole at the bottom and you have to keep filling your canister to fill it. If we can’t fill it anymore it will be empty. And the risk we have is that next year There will be no gas in April, May and June.
In spring, when heating requirements are low, gas is an important component for the operation of many industries, such as the metallurgy or the automotive sector. Laurent Horvath worries about a potential wave of factory closures and layoffs due to gas shortages or high prices.
Russian and American profits
In an effort to compensate for Russian gas shortages, European countries are buying large quantities of US shale gas imported by ship. Extracted through hydraulic fracturing, it is highly polluting. According to one, its extraction releases more than 40% methane. “It was played very well by the Americans,” said Laurent Horvath. “Donald Trump tried to bring shale gas to Europe. He failed. There, in the space of a few months, we completely turned to America.”
Joe Biden is shipping 15 billion cubic meters of liquefied natural gas (LNG) — the famous shippable gas — to Europe this year. But European leaders are turning to other producers such as Qatar, Nigeria, Israel and Algeria, where Emmanuel Macron was on an official visit from Thursday.
For his part, Vladimir Putin is not afraid to cut himself off from the European market. “Although Russia sells 20% of its gas to Europe, the price of the latter is ten times higher,” asserts Laurent Horvath. “So by selling a very small fraction of her gas, she’s making more money than before. It’s actually a very profitable business.”
An energy crisis could lead to new dictators or increase social tensions across Europe.
A new energy reality
For this expert on energy issues, the current gas crisis is not only connected to the war in Ukraine. “This is because there is physically less gas. For oil, it may be the same. We are announcing a production plateau for 2025, 2027”, he underlines. For Laurent Horvath, the energy crisis will help raise awareness of the value of energy and reduce its waste.
On the other hand, he did not believe that Europeans should rely on candles for light. Laurent Horvath, who is more concerned about the potential political consequences of the energy crisis, says that “it is a ruckus created by personalities that need to be heard”: “It could lead to new dictators or serious social tension across Europe.” In France, in 2018, the first yellow outfits mobilized against rising fuel prices.
*Price of futures contracts on the Dutch TTF market, the benchmark for natural gas in Europe.
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