Europe is stepping up measures to protect its industry as gas prices soar. Thus, European governments are implementing measures worth billions of euros. They intend to protect public services but also households, which have been heavily impacted by the surge in energy prices.
European economies are being hit hard by the energy crisis. In addition, the closure of Nord Stream 1 for an indefinite period of time has caused a new shock wave for the latter.
Indeed, Gazprom’s new announcement could lead to a further increase in gas prices. This is already the case. The reference price of gas jumped by 35% following this announcement. In addition, the euro has reached its lowest level in 20 years.
As a result, electricity distributors in Europe are experiencing difficulties. They face several obstacles, including a 400% increase in gas prices over last year and caps limiting sales prices.
Europe seeks to protect its industry from soaring prices
Thus, programs to support the industry are multiplying. For example, Finland is expected to provide $10 billion in liquidity guarantees to the country’s power companies. The same goes for Sweden, with $23 billion.
Sanna Marin, Prime Minister of Finland, explains:
“The government’s program is a last-resort financing option for businesses that would otherwise face insolvency.”
Many companies have difficulty finding cash. In fact, utilities typically sell electricity in advance to guarantee a certain price. However, they must maintain a “minimum margin” deposit in case of default. However, the latter is exploding with the surge in energy prices.
Western sanctions responsible for the energy crisis?
This is what Moscow says. Kremlin spokesman Dmitry Peskov says:
“The gas supply problems have arisen because of the sanctions imposed on our country by Western states, especially Germany and Britain. There are no other reasons that lead to supply problems.”
For its part, the West accuses Moscow of using gas as a weapon of war. Thus, the G7 intends to introduce a cap on Russian oil prices. In reaction to this announcement, Dmitry Peskov says that Moscow will retaliate if this announcement becomes reality.
Faced with the reduction in the flow of Russian gas to Europe, the Old Continent is looking for alternatives. Thus, it seeks to diversify its gas supply and fill its storage facilities before winter.
In addition, supply problems in Europe are having a strong impact on the industry. This is the case of Uniper, the German gas giant. Despite a rescue plan including an extension of the credit line in July, the company asked for new aid at the end of August.
Uniper is not the only company in Germany in this situation. Thus, the government states that it will spend at least 65 billion euros to protect consumers, but also the country’s industry. At the same time, Germany is keeping two nuclear power plants on standby until 2023 to avoid a shortage this winter.
In addition, following a call between E. Macron and O. Scholz, the French president pledged to support Germany in the framework of European cooperation. He states:
“Germany needs our gas and we need electricity from the rest of Europe, especially Germany.”
For its part, Ukraine is asking the EU to deliver weapons. Prime Minister Denys Shmyhal also proposes to help Europe with its gas supplies.
In Europe, the industry fears a recession
In Europe, the industry is therefore strongly impacted by this prolonged energy crisis. As a result, some industries are forced to reduce their production. This is mainly the case for energy-intensive industries such as fertilizer manufacturers. For example, Yara has reduced its ammonia production.
To limit the impacts, European states are implementing emergency measures. Some of these could lead to energy rationing, fuelling fears of a recession.
Klaus-Dieter Maubach, CEO of Uniper, is concerned:
“We can’t rule out that Germany is considering gas rationing.”
In fact, Germany is installing LNG terminals. This will allow it to diversify its imports. However, these are not yet in place. The country has already launched the second phase of its gas emergency plan. The next phase, the third and final phase, would probably mean rationing the industry.
There are also several factors to consider. European economies are just recovering from the COVID-19 pandemic. Thus, even before the war in Ukraine, the global LNG market was under stress.
Europe is now looking for new partners. In Europe, Norway is injecting more gas into European markets. However, the country cannot replace Russia. Other outlets exist. For example, American LNG is flowing into Europe. Geographically closer, Algeria is seen as a “reliable” partner according to the President of the European Council.
EU energy ministers are scheduled to meet on September 9. They will then look for solutions to limit the price increase. Several avenues are being considered, such as capping gas prices or emergency credit lines for market players.
