The European Energy Crisis

By: Chak Kai Wong—Correspondent

This winter, many factories and households in Europe will have to face energy shortage as Russia has cut off its export of oil and gas, hindering industrial activity and inflicting sky-high bills upon citizens in Europe.

For many decades, the European factories have relied on the cheap energy supplied by Russia. The Nord Stream 1 pipeline is a key artery carrying Russia’s vast gas supplies to Europe, accounting for about 35% of Europe’s total Russian gas imports last year. In recent months, Russian state energy giant Gazprom has reduced all supply through the pipeline to just 20% of capacity, citing maintenance issues and blaming Western sanctions on exports of technology imposed in response to Russia’s invasion of Ukraine. 

The delivery of gas was originally planned to resume in September, but an additional notice announced the complete closure of the pipeline due to an alleged leakage in a turbine. Ben McWilliams, an energy policy expert at Bruegel, says the leakage should not have led to complete closure. “This doesn’t seem like a legitimate reason to close a pipeline, I’m as confident as I can be that this is Putin’s latest move to manipulate gas prices and put pressure on Europe’s energy systems,” he said. 

As a consequence of the shortage in energy supply, the price of natural gas surged in recent months. Natural gas prices topped $3,100 per 1000 cubic meters in mid-August, a 610% increase over the same time last year as measured by the Dutch TTF market. TASS, the Russian national news agency, threatened, “Natural gas prices in Europe may climb to record-high $5,000 per thousand cubic meters in case of a cold snap and inventories decline in storages. At this price, many power stations cannot afford to operate for long.” 

To respond to the European energy crisis, providing relief to the surging gas and power prices, the European Union proposed a series of emergency measures. “We will work with the market regulators to ease these problems by amending the rules on collaterals and by taking measures to limit the intra-day price volatility,” said EU President Ursula von der Leyen. 

The EU governments will now negotiate the details, potentially approving the legislation by the end of September. “Freezing or capping energy bills might help consumers in the short term, but it does not address the real causes and is not the long-term solution,” warned Amin Nasser, the chief executive of Aramco.

Russia’s weaponization of gas resources forced European leaders to reinvest into renewable energy. The EU has initiated its REPowerEU project with the aim of accelerating the clean energy transition to become independent from Russian supply before 2030. “If we don’t want to prepare more sanctions in the future, we should rather solve the situation with energy now,” said Jozef Sikela, the Czech energy minister. Under this plan, the EU wants to have 17.5 gigawatts of hydrogen capacity within three years. 

“It’s not going to be a short-term fix as it’s going to take quite a few years to build those plants. But, done in the right way, we can have electricity that is affordable and reliable,” said Patrick Fragman, chief executive of Westinghouse. 

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