Europes Oil crisis is set to worsen this winter, and to spread globally. Why is this happening, what economic issues does it carry with it, and can we solve it?
Reserves at European storage facilities are at historically low levels for this time of year. Pipeline flows from Russia and Norway, two of Europe and the worlds main suppliers have been limited. The “gas shortage” along with the ageing and outage prone nuclear plants, the calmer weather on wind turbines, could cause an enormous problem in the near future. The lack of gas may cause fertilizer companies to slow down production, adding to global food inflation. In the U.K., high energy prices have forced several suppliers out of business. Even a normally cold winter in the Northern Hemisphere is expected to drive up natural gas prices further across much of the world. In China, industrial users including makers of ceramics, glass, and cement may respond by raising prices.
Natural gas prices have been surging in Europe as demand increases globally. While this is happening with most commodities, it’s been a larger problem with natural gas. It’s due to a global economic rebound as countries lift COVID-19 restrictions and fully reopen their economies. Markets are now competing as demand rises after the shock of the pandemic. That coupled with a phasing out of coal and a bad year for wind production has driven up the need for natural gas.
There have been concerns that Russia could be using the crisis to lobby for the newly completed Nord Stream 2 pipeline to come online by not sending more natural gas for Europe’s storage. Russia was the largest exporter of natural gas to the European Union in 2019 and 2020, representing more than 40% of EU imports.
In conclusion, the gas crisis is due to higher demand, and less supply. Russia claims the new Nord Stream 2 pipeline will balance out gas prices in Europe, but nothing is certain. If the prices keep rising, many homes across Europe and the UK will struggle to heat homes this coming winter.