Europe’s energy crisis is set to worsen as winter approaches

A super rise in prices in the UK last month forced some industrial companies to cut production and seek state aid, a harbinger of what could happen widely in Europe as it tackles the coronavirus resurgence. For governments, it could mean tensions with neighboring countries with the move to protect supplies. For households, this could mean that they are asked to consume less energy or even plan for a power outage.

The problem is that any solution is unlikely to come soon on the supply side, with Russian exporters providing only what they need and Qatar saying it is producing what it can. “On the contrary, the energy industry is faced with relying on the destruction of demand,” said Fabian Roenningen, an analyst at Rysted Energy.

“We have already seen it in the last two months, and in many industries, it will probably continue and even increase,” he said from Oslo. It just is not profitable to operate for many of the players in the current market conditions. ”

The outlook reinforces the sense of premonition in Europe. The region is once again at the center of the pandemic with Covid-19 cases rising and fears of a new variant found in South Africa swirling around the world. Restrictions are tightening in some countries, while household budgets are being squeezed by rampant inflation. In addition, icy weather could mean that the lights go out. A return to the lockdown as in Austria would help curb energy demand, although few governments want to do so.

France, Europe’s second largest economy, is at particular risk. The possibility of cold in January and February is a concern for the operators of the national network. Availability at nuclear power plants, the advantage of the French electricity system, is low after the pandemic delayed the maintenance of some reactors, according to a report on 22 November.

Electricity prices there are the highest since 2012, as a cold snap swept through France and is expected to remain stable until Monday, when demand for weekdays begins to rise.

Last winter, the network operator called on households to use less energy during peak hours and activated some demand-cutting contracts with manufacturers when things were too tight. The next step would be to reduce the mains voltage and then cut off power for two hours per area as a last resort. All this will come before the presidential elections.

“If there is a deep cold and there is no wind, things could get tough given the lower availability of nuclear power plants and the recent closure of coal-fired power plants,” said Nicolas Goldberg, senior energy director at Colombus Consulting in Paris. . “If it’s very cold and there is no air, it can be a problem.”

France is also a major exporter of electricity to neighboring countries, which means that the effects of a crisis would resonate with Germany, Spain, Italy and Britain. Maximum demand is expected to be 80.7 gigawatts on Monday, far from the record of 102 gigawatts since February 2012.

The situation is already so dire at the beginning of the winter season, due to the explosive rally in gas prices. Fuel depots, which are used to heat homes and generate electricity, are lower than usual and run out quickly. Analysts have warned that gas stores could be shut down this winter if cold weather boosts demand.

Rolling out power is a possibility, warned Jeremy Weir, chief executive of Trafigura Group, a Swiss merchandise firm, on November 16.

“If the weather is cold in Europe, there will be no easy supply solution, we will need a demand solution,” said Adam Lewis, a partner at Hartree Partners LP.

On the supply side, what Russia will do next will be the key. President Vladimir Putin has indicated he will help Europe with more supplies to stabilize the market, but while shipments have recovered from a recession in early November, they are low compared to last year. How much gas Russia sends to Europe in December remains an even bigger mystery.

QuicktakeHow Europe has become so dependent on Putin for gas

The long-awaited launch of the Nord Stream 2 pipeline to Germany from Russia will reduce the continental energy crisis. The project has been completed, but has encountered regulatory obstacles and it is unclear when the flows will begin.

Qatar, the world’s largest exporter of liquefied natural gas, says it already produces gas at full capacity. The Gulf nation, which has low production costs thanks to the abundance of easily extracted fuels, has ordered six more LNG ships from South Korea in addition to four tankers purchased from China in October.

If things go too badly, countries could resort to restricting gas sales to other regions. An even more extreme scenario could see them stop flowing gas and energy between them, sparking political tensions and hurting economies.

The European Union has what it calls solidarity principles that supposedly prevent any state from blocking electricity or gas exports and leaving another member in short supply, especially when it comes to household supplies.

Solidarity, however, has never been tested in a large-scale crisis, and network operators say they are allowed to stop or change cable power flows between countries if they have security of supply problems. When the nickname “Beast from the East” was released in late February 2018, it was quite late in the heating season. This year, it is possible that a less severe weather phenomenon could have a similar impact.

“It shows how exposed Europe’s electricity system is to commodity price volatility,” Roenningen said in Oslo. In the short term, there is not much that can be done. “

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