The Energy Deadlock in Europe.
The problem goes far beyond the war in Ukraine, and Europeans will pay for more than two decades of mistakes by their leaders.
In the early autumn of 2022, all eyes are on markets that were only known to insiders three or four years ago: gas and electricity markets in Europe. Until then, only the price of oil mattered, setting the tone for the global energy scene. It was oil that triggered the great shocks of the 1970s and 2008-2010.
Natural gas was only a distant second, especially since its abundance was reassuring with the development of shale gas, which Europe could then afford to snub. As for electricity, we watched with curiosity the throes of American deregulation and the resulting crises from California to Texas. Nothing like that in Europe, thanks to German and Spanish renewables, French nuclear power, Polish coal, and ... Russian gas!
All this has been shattered and there are no longer any European certainties in terms of energy.
The price of gasoline at the pump has almost taken a back seat, helped by the relative moderation of the oil market, which is now under 90 dollars a barrel. Natural gas, on the other hand, is running at prices 20 times higher than in the 2010s, exceeding $300 per barrel of oil equivalent. And, as we know, the electricity price formation mechanism, designed to benefit renewables, has become a vicious circle, correlated to the price of gas: as a result, electricity prices are extremely volatile, ranging between 500 and 1,000 euros per MWh, levels at least ten times higher than in the previous decade.
While the war in Ukraine has direct responsibility, the roots of the crisis are much deeper.
Across Europe, governments are reduced to plugging the gaps, with laudable calls for sobriety and tariff shields and subsidies for the less well-off. All this has a budgetary cost, of course, and is generally limited to households, voters, and possibly rebels. Nothing of the sort for businesses, which are taking the full brunt of an energy shock on a scale comparable to those of 1973 and 1980.
A winter recession is looming in most European countries.
Let's not go back over the mistakes made, in particular, the irresponsible ideologization of the energy transition as it has been instrumentalized in Europe for the last twenty years. The unyielding refusal of nuclear power and shale gas, and the desire to electrify economies without considering the availability of electricity in the absence of Russian gas, are now paying a high price. The solutions put forward in terms of electricity production will take years to materialize.
In the short term, gas has to be found and paid for at a high price: even Norway is not doing any favors!
Capping the price of gas is almost impossible, especially since Europe is not alone in this market, which has long been dominated by Asian purchases. For electricity, on the other hand, there is room for maneuver and the EU could go down the road of administered prices. But this assumes that there is a political will, which seemed to be lacking in Ursula von der Leyen's State of the Union address.
In July 2022, at the Rencontres Economiques d'Aix-en-Provence in the south of France, a former Polish energy minister said that Europe in the fall of 2022 would have no choice but to face "exorbitant prices or colossal debt." He was unfortunately right. We could even add a few "long fiddlesticks sobs" and hope that the winter will not be too harsh.
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