Russian gas supplies toward Europe won’t be returning anytime soon, as Gazprom just announced that it had completely halted transport of gas to Nord Stream “until the leakage is fixed”. Russian energy giant Gazprom was supposed to resume vital supplies of natural gas to Europe through Nord Stream on September 4, 2022 after a three-day halt, but it seems that Putin had other plans. Therefore, Europe will now be compelled to depend even more on China’s oil, which is still from Russia, at more expensive cost.
Any hope that Europe’s energy inflation was finally coming to an end was quickly dashed by the news. People are now anticipating that European gas prices, which have dropped by more than 50% in recent days, are about to go way more higher as soon as trade resumes. If the problem at Nord Stream persists, people think this would rekindle market concern over the region’s capacity to handle storage through the winter.
The discussion regarding government market action will probably also get hotter if European gas prices start to rise again as a result of Nord Stream news, as most official pronouncements to yet have suggested an intervention in electricity markets. Some groups issued a warning that, depending on how such an intervention affects power pricing, it may indirectly tighten gas balances even more by encouraging higher power usage and, consequently, higher gas demand. From the standpoint of the gas balance, we think that government-run reverse auctions might be a better option.
This would entail that governments would voluntarily purchase gas directly from industrial users to store. Since this would be an independent method of reducing gas demand, it would help ensure storage builds while relieving prices of the adjustment burden, thereby lowering gas and power prices.
Meanwhile, in the midst of the worsening energy crisis, horrified Europeans have been posting viral images of shockingly expensive energy bills over the past week, primarily in the UK and Ireland. Many of the posts came from small business owners that are currently being completely crushed and won’t be able to continue operating for very long. If the shutdown continues, it puts households, factories, and economies at risk, weakening Europe’s hand as it supports Ukraine in the war against Russia.
In Germany, the government has called this trend “alarming” since German industries are ceasing production in response to the rise in energy prices. German Economy Minister Robert Habeck claimed that industry had made significant efforts in recent months to cut its gas usage, including moving to alternate fuels like oil, improving the efficiency of its operations, and lowering production. But he clarified, some companies had also “stopped production altogether”. It could indicate that the industries in issue are suffering a rupture – a structural breach that is taking place under extreme pressure. “That’s not good news,” he warned.
The German minister claimed the business model of a lot of German manufacturing was predicated on the abundance of gas from Russia, which was less expensive than gas from other regions. Energy is a crucial component of every business model, so one can only imagine the chaos, fear, and loathing that are currently hammering the largest European economy.
References:
https://www.economist.com/leaders/2022/09/08/how-to-deal-with-europes-energy-crisis
