German nuclear power plant running again

Energy prices have risen across Europe in the last year, and as winter approaches many fear that an energy crisis might be on the horizon.  This brings up many questions, with the first and most obvious one being, why did energy prices rise?  Complex global markets are, well, complex, but large geopolitical events are often the stage for trade disruptions that can lead to shortages.  The Russian invasion of Ukraine in April 2022 was a major move, one that many European countries were quick to condemn.  Russia is an energy exporter with large oil, coal and natural gas reserves.  Russia supplied 40% of the EU’s natural gas before the war, but only 9% now after the Nord Stream 2 pipeline ceased being utilized.  Nord Stream 1, which pipes gas through the Baltic to Germany, has a very limited flow currently (officially, this is annual maintenance, but skeptics note that the flow is lower than regular maintenance and suspect Russia is putting the squeeze on the EU). This summer’s heat wave wouldn’t have been as big and issue if energy were abundant and relatively cheap in Europe.

Europe has stumbled into an energy crisis because of these geopolitical maneuverings. Natural gas is a primary energy source, but one that is especially used for heating and therefore, more critical in the wintertime.  The United States and European countries sought to impose strong economic sanctions against Russia, hoping to cut into Putin’s revenue stream and stop the war; or at least not feel as though they were funding the war.  This overvalued the power of an embargo of an and underappreciated the reliance of the European economy and standard of living on access to affordable energy. 

A quick animated explanation of the current energy catastrophe in Europe

Natural gas prices in Europe were at times in the summer, 7 to 8 times more expensive than gas in the United States. Many private individuals, small businesses, and any business with a thin profit margin, felt the squeeze of energy bills. Russia isn’t backing down from any economic sanction, saying that other regions besides Europe will gladly buy Russian gas. China has kept Russian production from grinding to a halt, effectively breaking the westward embargo, by sending it East.  Consequently, Europe is facing the negative consequences of the economic sanctions more so than the Russian energy sector. 

Europe has diversified natural gas and other energy sources, and launching a package of emergency proposals to get through the winter. Some analysts are optimist that Europe has solved the energy crisis before winter, by building more storage, increasing domestic production, and diversifying their supply. .  Countries like Germany have been reluctant to use their nuclear power and were caught flat-footed.    Coal, nuclear energy, and other energy sources that were dismissed for carbon emission concerns or environmental concerns are being reevaluated as the need is high in an energy-hungry market.  The prices will continue to fluctuate but this is an issue worth keeping an eye on in the next few months.

The Nord Stream 1 pipeline is currently functioning far below capacity

TAGS: Europe, energy, geopolitics.