3 graphs show the unprecedented natural gas crisis in Europe
Europe is facing an unprecedented gas crisis.
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Europe is facing an unprecedented energy crisis that is bringing the economy closer to recession and raising serious questions about the region’s climate change ambitions.
CNBC examines how Russia, led by President Vladimir Putin, is cutting gas supplies to Europe and what that means for the future.
Russia cuts supplies
Russia has drastically reduced natural gas flows to Europe since Western countries imposed harsh sanctions on the Kremlin following its unprovoked invasion of Ukraine on February 24.
Moscow denies using the gas as a weapon, but the Europeans complain that Gazprom, the Russian state energy company, is no longer a reliable supplier. Russia’s reduced gas supplies are a problem for EU countries given that it imported about 40% of its gas stocks from the country.
Data from Nord Stream, the operator in charge of a pipeline [Nord Stream 1] which connects Russia to Germany, confirm that there are fewer volumes of gas to the West.
Last week alone, supplies through Nord Stream 1 were cut from 40% to 20%, with Gazprom citing maintenance issues
German Economy Minister Robert Habeck said Gazprom’s technical excuse was a “prank”. Supplies had been briefly interrupted before the latest reduction, with maintenance work completed between July 11 and July 21.
According to the European Commission, the EU’s executive arm, 12 member states are already suffering from reduced gas flows and a handful of others have been cut off completely.
Senior EU officials say Russia is “blackmailing” Europe and “arming” its gas supplies. Moscow has repeatedly denied the charges.
“We have to be ready, there could be a complete disruption in almost [the] the future, and that means we have to have a plan in place,” Kadri Simson, EU energy commissioner, told CNBC last week.
European leaders are worried about a complete halt in supplies, especially because many industries use the raw material as a raw material in their manufacturing process.
In this context, efforts have been made to seek alternative suppliers and different sources of energy. However, this transition is a difficult task that is impossible to do in a short period of time.
The commission has asked EU countries to have a minimum storage target of 80% by November. In June, gas filling levels barely exceeded 56%, according to the same institution.
Natural gas prices soar
Natural gas prices rose dramatically following Russia’s invasion of Ukraine and even before, when Russia began to tighten flows.
There are new price pressures every time Russia decreases its supplies to Europe, given the importance of the raw material for several sectors and the lack of alternatives to Russian fossil fuels.
Salomon Fiedler, an economist at Berenberg, noted that natural gas prices in Europe are now “extortionate” compared to the 2015-2019 price average.
“In a normal year, the EU can use around 4.3 billion megawatts per hour (MWh) of natural gas. So if prices are €100 per MWh higher for a year and the EU must pay these prices instead of benefiting from certain long-term fixed-price contracts, the costs would increase by around 430 billion euros (437 billion dollars) – equivalent to 3% of the EU’s GDP in 2021,” he said.
Higher prices then naturally trickle down to the energy bills of businesses and individuals across the bloc.
“European benchmark prices for natural gas at the Dutch Title Transfer Facility (TTF) jumped 15% to almost €200 per megawatt hour as utilities bid for alternative supplies, raising fears that consumers and industry will struggle to pay their energy bills and that there will be a winter recession,” analysts at consulting group Eurasia said in a research note on Tuesday.
Growth expectations have collapsed
With reduced supplies and higher prices, the gas crisis is undermining Europe’s economic prospects.
The latest euro zone growth reading, released on Friday, showed second-quarter GDP of 0.7%, above market expectations. But more and more economists are predicting a recession for 2023.
The European Commission said earlier this month that the economy would grow by 2.7% this year and 1.5% next year. However, the institution also said a complete shutdown of gas supplies from Russia could lead to a recession later in 2022.
“Rising gas prices are driving up business costs and squeezing consumer budgets, leaving them with less money to spend on other goods and services. recession this fall with inflation still high,” Fiedler said. .