What’s Behind the Energy Crunch in Britain and Europe

By Stanley Reed (Thur. October 14, 2021)

Just as economies seemed to be returning to something like normal, an energy crunch has hit Britain, the rest of Europe and much of the world.

Natural gas, the main focus of this squeeze, is crucial for generating electricity, running factories and heating homes. It is also seen by some as a transition fuel away from highly polluting coal.

Prices for natural gas have risen about sixfold, to record levels. The surge means the wholesale price of electricity has reached stratospheric levels, making headlines across Europe as consumers, battered by the pandemic, are now hit by big increases in their home energy bills. These high costs are also undermining the economics of companies that make fertilizer, steel, glass and other materials that require a lot of electricity.

Britain, whose power system depends heavily on gas, is taking some of the hardest blows, creating major headaches for the government of Prime Minister Boris Johnson.

Mr. Johnson has already been pushed into subsidizing a fertilizer factory and is under pressure to do more to prevent factory closures and job losses. He has also brought in military drivers in an effort to ease a shortage of gasoline, which has caused lines at filling stations.

The gas spike is also making geopolitical waves. Russia, Europe’s largest gas supplier, is being blamed for manipulating prices. The United States, in turn, has warned Moscow not to try to exploit the gas crunch for its own ends. The pinch could open the way for more exports of liquefied natural gas from shale drilling in the United States.

Here is a look at the energy issues rocking Britain and Europe.

Demand for energy has jumped as the world economy has reawakened from shutdowns brought on by the pandemic. The sudden need for natural gas took the energy industry by surprise, and prices shot up. The approach of winter, the major season of gas consumption, has lifted prices further as countries in Asia, Europe and North America outbid each other to make sure they have fuel to stay warm.

China, the world’s largest gas importer, is snapping up gas to fuel power plants and cut carbon emissions. China’s aggressive purchases are drawing gas away from Europe at a time when deliveries from Russia, a key supplier, have been disappointing.

European countries normally stock up on gas in the summer, when prices are relatively cheap. Not this year. European storage levels are low, making markets so jittery that there have been some of the wildest swings in gas prices that traders have ever seen.

The Nord Stream 2 pipeline facility in Lubmin, Germany. The Kremlin has suggested that the gas crunch might ease if the pipeline was quickly approved by European regulators.
The Nord Stream 2 pipeline facility in Lubmin, Germany. The Kremlin has suggested that the gas crunch might ease if the pipeline was quickly approved by European regulators.Credit…Odd Andersen/Agence France-Presse — Getty Images

No. Many factors have contributed. But markets watch the largest supplier to Europe very closely, and analysts say Russia’s recent signals that it will keep a tight grip on gas flows to Europe has played a big role in recent price spikes.Daily business updates  The latest coverage of business, markets and the economy, sent by email each weekday. Get it sent to your inbox.

“A lot of those have been triggered by things the Russians have effectively done,” said Trevor Sikorski, the head of gas at Energy Aspects, a research firm.

President Vladimir V. Putin of Russia is trying to use the energy crunch for his own ends. On Wednesday he said the gas crunch would ease as soon as European regulators approved Nord Stream 2, the politically fraught gas pipeline that runs underwater from Russia to Germany. Once operating, the pipeline will likely strengthen the grip of Gazprom, the Russian gas company, on European markets.

On the other hand, some analysts doubt that the problem would be solved as soon as the European Union and Germany sign off on the new pipeline. Russia is probably facing a crunch of its own, according to Henning Gloystein, a director at Eurasia Group, a political research firm. As part of a deal with the Organization of the Petroleum Exporting Countries to bolster markets during the pandemic, Russian companies were ordered to cut back oil production, and as a result their gas production was also curtailed and has been slow to recover.

Britain has to a great extent phased out coal in power generation and built large capacity in renewable energy, particularly offshore wind.
Britain has to a great extent phased out coal in power generation and built large capacity in renewable energy, particularly offshore wind.Credit…Suzie Howell for The New York Times

Britain is paying a price for a combination of successes and failures. The country has to a great extent phased out coal for power generation and built up capacity in renewable energy, particularly offshore wind. These moves cut greenhouse gas emissions and help curb global warming.

But shuttering coal plants while the country’s aging nuclear plants are gradually closing has made Britain dependent on gas for around 40 percent of the country’s electricity, far more than any other fuel. (In France, by contrast, nuclear plants provide about 70 percent of electricity.) It hasn’t helped that the breezes that spin Britain’s wind turbines, which generate about 20 percent of the country’s power on average, have been unusually weak in recent months.

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