The energy market is no stranger to sudden price changes, although the most recent fluctuations are causing concern in Europe. There is a surge in energy prices that is causing concern among institutions, companies and citizens. Rising natural gas and coal prices will consequently affect the price of electricity and gas in our bills. While there has already been talk of a global energy crisis in the last period, it should be noted that the most recent price increases in Asia and Europe are characterised by a new element: following climate change and the transition to clean energy hand in hand. But let's proceed in order.
The sharp decline in energy storage and supply is driving up prices, thereby fuelling inflation that is hampering economic recovery. Demand for coal as a substitute for gas in electricity generation has risen accordingly, and so have prices. The chain of setbacks also includes the processing of raw materials, which require energy to process, leading companies to reduce their production. The UK has already seen nine electricity companies (serving a total of 1.73 million customers) go out of business in September alone, and many others have had to reduce production at the request of the government; UK citizens themselves have seen the maximum price that can be charged to energy consumers increase, adjusted for the new tariffs.
But where did the European energy crisis start?
From several, often interconnected factors. Let's start with the pandemic. The long-awaited economic recovery has been significant across the globe, and smart working has inevitably increased energy consumption in homes. Since the beginning of 2021, we have seen seasonal trends that could be described as "harsher" than previous years: colder weather has caused demand for gas heating to increase, which is then replaced by demand for electricity for air conditioners in the warmer months of the year. The lack of wind power also had a negative impact on renewable energy production, which was compensated for by demand for coal and gas.
In addition, reference must be made to the European Union's climate policies. The EU has stipulated that factories and power plants must apply for an emission permit for every tonne of carbon dioxide they produce (subject, of course, to a maximum emissions quota that is bought at auction). A package of reforms has limited the available permits, which have consequently reached very high prices.
Let's consider one last factor that is being seen as the sole culprit of the current crisis at a political and media level: Russia. According to Eurostat data, in 2020 Russia was the largest importer of natural gas (43.6%, almost half of all imports) in the European Union, followed by Norway (22.5%) and Algeria (9%). Already this summer, Russia has offered Europe a reduced gas supply compared to the pre-pandemic period, in fact it fell by 17% between September and October alone. On 5 October, the price of gas reached €117.50 per megawatt hour (400% more than at the beginning of the year), which was then mitigated by President Putin's declaration of an increase in gas supplies to Europe. Gazprom, Russia's state-owned company and main gas exporter, announced that it could not - or would not, the question is open - guarantee additional supplies to those already contracted, leading to a substantial reduction in flows and a drop in the Russian company's gas stocks in Europe. The promise to fill storage sites in Germany and Austria by 8 November had raised hopes, but in practice Gazprom has only partially supplied its plants.
However, the Russian company announced the completion of Nord Stream 2, a pipeline connecting Russia to Germany via the Baltic Sea (and then connected to the EU distribution network). At 1,230 km, it is currently the longest gas pipeline in the world, and probably also the most controversial, as Russia has always used gas exports as a political tool to project its influence abroad, as well as an economic resource.
Several MEPs accused Russia of strategically reducing gas supplies to the European Union with the aim of putting pressure on it to activate Nord Stream 2 as soon as possible. The group of MEPs has formally called for an investigation into Gazprom, while the United States has denounced possible market manipulation. In any case, the current situation is very critical, as this time of year is the time when gas reserves increase in order to secure supplies for the winter, and storage facilities are experiencing extremely low levels of natural gas.
Global warming and transition are the two elements that characterise the current energy crisis. It is important to anticipate the fluctuations in the markets to which the energy transition is linked in order to implement more correct and concrete measures in the fight against climate change. These months have made it clear how difficult it is to maintain the balance between energy supply and demand, and the transition to clean energy will not become easier in the short term, but an acceleration in this direction will be increasingly necessary.
The current situation is a preface to the future that awaits us, and a further wake-up call for the need to combat global warming.
Translated by Sara Prunecchi