Europe is facing an unprecedented gas crisis.
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Europe is facing an unprecedented energy crisis that is pushing its economy closer to recession and raising serious questions about the region’s climate change ambitions.
CNBC looks at how Russia, under President Vladimir Putin, is squeezing gas supplies to Europe and what this means for the future.
Russia cuts supply
Russia has significantly reduced the flow of natural gas to Europe since Western nations imposed tough sanctions on the Kremlin following its gratuitous invasion of Ukraine on 24 February.
Moscow denies it is using gas as a weapon, but Europeans complain that Gazprom, Russia’s state-owned energy company, is no longer a reliable supplier. Falling gas supplies from Russia is a problem for the EU countries, which used to import about 40% of their gas reserves from the country.
Data from Nord Stream, the operator in charge of the pipeline [Nord Stream 1] linking Russia with Germany, confirming that there is less volume of gas heading west.
Last week alone, the supply via Nord Stream 1 was reduced from 40% to 20% due to Gazprom explaining maintenance problems
German Economy Minister Robert Habeck said Gazprom’s technical rationale was a “farce. “Supplies were briefly halted prior to the most recent reduction, with maintenance works to be completed between July 11 and July 21.
According to the European Commission, the EU’s executive body, 12 member states have suffered from reduced gas flows and several others have been cut off altogether.
Top EU officials say Russia is “blackmailing” Europe and “weaponizing” its gas supplies. Moscow has repeatedly denied the allegations.
“We have to be ready, there could be a total disruption in the near future [the] Kadri Simson, Europe’s energy commissioner, told CNBC last week.
European leaders are concerned about a Completely turn off the power supplyespecially since many industries use the commodity as a raw material in their production process.
In this context, efforts have been made to find alternative suppliers and different energy sources. However, this transition is a difficult task that cannot be accomplished in a short period of time.
The Commission has required EU states to have a storage target of at least 80% by November. In June, gasoline fill levels were just over 56%, according to the same organization.
Natural gas prices soar
The price of natural gas has increased significantly after Russia invaded Ukraine and even before Russia started tightening the flow.
Price pressures increase each time Russia reduces supply to Europe due to the importance of this commodity to some sectors and due to the lack of alternatives to Russian fossil fuels.
Salomon Fiedler, an economist at Berenberg, noted that natural gas prices in Europe are now “exorbitantly more expensive” than the 2015-2019 average.
“In a normal year, the EU could use about 4.3 billion megawatts per hour (MWh) of natural gas. Therefore, if prices are higher than €100 per MWh in a year and the EU has to pay these prices instead as it benefits from several long-term fixed-price contracts, costs will increase by around €430 billion ($437 billion) – or 3% of the EU’s 2021 GDP,” he said.
Higher prices will naturally reduce the energy bills of companies and individuals across the bloc.
“Standard European natural gas prices at the Dutch Transfer Facility (TTF) rose 15% to almost EUR 200/megawatt hour as utility companies bid for alternative supplies, raising concerns that consumers and industry will struggle to pay their energy bills and that there will be a recession in the winter,” analysts at consulting group Eurasia said. know in a research note on Tuesday.
Growth expectations shattered
With supply falling and prices higher, the gas crisis is shaking Europe’s economic outlook.
The latest growth figures for the euro area, on Friday, showed GDP at 0.7% in the second quarter – well above market expectations. But more and more economists are pricing in a recession in 2023.
The European Commission earlier this month said the economy would grow 2.7% this year and 1.5% next year. However, the organization also believes that a complete shutdown of gas supplies from Russia could lead to a recession by the end of 2022.
“Higher gas prices raise costs for companies and tighten consumer budgets, leaving them with less money to spend on other goods and services. We therefore anticipate the region.” the euro will slide into recession this fall with inflation still high,” Fiedler said.
