Energy Prices Soar in Europe

Since September 2021, Europe has seen energy prices rise. This trend has intensified since the Russian invasion of Ukraine. The old continent is therefore forced to put in place measures to deal with a possible gas shortage this winter.
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Energy prices continue to rise in Europe. The current context is responsible for this increase in energy bills. In addition, some regions are at risk of facing high fuel poverty.

Soaring energy prices

The rise in energy prices is not recent. This one is already worrying since September 2021. As a result, energy prices exceeded what Europe considered to be normal. Since then, following the invasion of Ukraine by Russia, the situation has worsened.

Another major factor in this price increase is the termination of the NordStream 2 project by Germany. In fact, on February 22, the country announced thatthe certification process for the Baltic Sea gas pipeline project had beensuspended. This would have doubled the volume of Russian gas transported directly to Europe.

The $11 billion NordStream 2 project was completed last September. However, it required certification from Germany as well as from the European Union.

Concerns about gas supply have increased recently with the reduction of Nord Stream 1 volumes. Last July, Russia was only transporting 20% of the planned volumes, citing maintenance problems. This has aroused European suspicions that it is a response to the sanctions imposed by the EU.

European countries seem to be on the right track to reach the 80% filling rate of storage sites. However, the risk of a very cold winter remains and could quickly deplete its reserves.

In addition, demand was strongly stimulated by the difficulties encountered by the French nuclear industry. These have reduced the country’s nuclear production, which is expected to reach 280-300 TWh in 2022, compared to 290-315 TWh in 2021. A problem of reactor corrosion had been the cause of these breakdowns. In this sense, 12 out of 56 reactors have been shut down.

A situation that could last several years

Analysts expect energy prices to remain high for the next two years, if not longer.

In response to these circumstances, governments are implementing measures to reduce gas consumption. They have passed various laws on air conditioning and heating levels in public and commercial buildings. This is in addition to the commitment made in July by the EU Member States to reduce gas consumption by 15%.

The purpose of this reduction is primarily to save money before winter. This is because of the risk of possible disruptions in gas supply from Russia. Member States are free to use whatever measures they choose to achieve this goal. In addition, it is possible for them to request a derogation or to benefit from exemptions depending on the situation in the Member States.

In addition, the EU is seeking to diversify its gas supply. This implies the identification and construction of new routes reducing the EU’s dependence on Russia.

In addition, some countries are implementing emergency measures. Germany, for example, is moving to the second stage of the gas emergency plan. It also wants to introduce a tax on gas from October. This will allow the high costs of replacing Russian gas to be spread out. However, this will result in a significant increase in household gas bills.

In Great Britain, faced with soaring energy prices, a new movement is developing: “Don’t Pay UK”. This encourages Britons not to pay their gas and electricity bills until they fall to a level deemed reasonable.

What about consumers?

The energy crisis is impacting consumers. The latter are being hit hard by the surge in energy prices. In Europe, households account for 30 to 40% of gas demand. 80% of this demand is related to heating. The remaining 20% is for hot water and cooking.

According to Bernstein analysts, it would be possible to reduce gas demand by one-third by taking action within the household.

In fact, it is advisable to lower the thermostat by one degree. By going from 20 to 19 degrees, it is possible to achieve a reduction of 7%. It is also suggested to delay the start of the heating from October to November. In addition, turning off the heat from February instead of March would contribute to the decrease in demand.

The sharp rise in energy prices and the realities of supply in Europe are of concern to consumers and governments alike. However, it is possible to see that many actors are looking for solutions to this unstable situation.

 

Illustration by Glenn Issac

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