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.
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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.
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.
Why have natural gas prices jumped so high?
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.
Is this all Russia’s fault?
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.
“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 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.
Why is Britain in such bad shape?
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%
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% of the country’s power on average, have been unusually weak in recent
months.
A fire that knocked out a large cable bringing electric power
from France added to the woes. And unlike other European countries, Britain has
not invested in gas storage facilities, instead allowing one major such
facility to close in 2017.
Are consumers getting any relief?
The soaring wholesale price of electricity is being passed along
to homeowners, stretching budgets and forcing governments to intervene. In
Spain, the government recently, in effect, said it would take profits earned on
electric power generation from wind and solar to compensate consumers for high
gas prices.
About 15 million British households were recently hit with
energy price increases in the 12 percent range under a government program to
cap big jumps in rates. The capped rates are reviewed every six months; the
next review, in April, is widely expected to result in a bigger jump.
Another issue facing homeowners: Many electricity suppliers that
offered customers low-priced deals have found themselves unable to meet their
commitments at current prices. Many of these relatively small companies have
collapsed in recent weeks, and the accounts of their estimated 1.7 million
customers are being auctioned off to stronger companies. No one will lose power
because of these business failures, but ultimately those customers will pay
higher rates, and the companies that take on the customers will be able to pass
on extra expenses to bill payers.
Gasoline shortages? That’s a different problem.
Long lines at gas stations in Britain last month were caused not
by a shortage of fuel but by a shortage of truck drivers to deliver the fuel.
Partly because many European drivers have returned home from Britain because of
Brexit, there are not enough of them to keep gas stations’ tanks filled.
The problem snowballed when news reports of long lines at
filling stations prompted panic buying.
In recent weeks the problem has subsided.
Is this the new normal?
It could be for some time, not unlike the supply chain issues
that continue to put a drag on the delivery of goods. Business executives note
that these price spikes are occurring in the fall, not winter, when demand for
gas revs up, and so they suspect the crunch could worsen. A lot depends on
weather. A change in Russia’s approach might help.
But analysts say Britain could be the major European economy
most at risk of not having enough energy to run its economy. “Should this
happen, the government would likely demand factories to reduce output” in order
ensure household supply of gas, Gloystein wrote in a note to clients.
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