How Bad Is Europe’s Energy Problem? Better Than You Think
There’s a been a lot of scaremongering about Russia and its threats to turn off Europe’s energy supply this winter by conducting ‘maintenance’ on the natural gas pipeline that goes through Ukraine.
But it’s a hollow threat. So empty that it beggars belief.
The reality is that the bulk of Europe’s natural gas supply (55%) comes from places other than Russia. Notably, the it a lot of liquified natural gas (40%,) which comes via the sea. And it gets gas piped from Africa (15%.) The rest is coming from Russia, but only a tiny amount of that remaining 45% comes through Ukraine’s pipeline, according to research by Max Pyziur’s at the Energy Policy Research Foundation Inc. Hat tip to Jeff Christian who discusses the analysis in a recent video.
It’s also interesting to note that while Europe’s natural gas production has been steadily declining since 2013, its imports from Russia dropped dramatically starting in 2020, approximately two years before Russia’s invasion of Ukraine in late February 2022.
In response, to the war, Europe’s countries upped their imports of LNG (liquified natural gas.) Meanwhile, Europe’s storage facilities now hold ample inventories of natural gas. That means there will be enough to get the continent through the winter.
What won’t change is the elevated prices for gas. A megawatt hour of natural gas in Europe would recently fetch 113 euros ($111) up from 94 euros ($92) in mid October last year. A year ago was long before the war started.
However, don’t get too complacent. Europe is enjoying a delightful period of warmer than usual weather. When or if a cold snap arrives we should expect prices to rise. And that could be a problem for Europe.
If anything, Russia is likely to suffer more, as its fiscal budget is heavily funded by oil and gas revenue.
But Russia’s threats have woken the Europeans to the need to source their energy more judiciously. That will likely serve Russia poorly over the medium term as they will no longer have a ready buyer of the doorstep.