The hard truth behind the energy crisis in Europe
The energy crisis in Europe continues, as gas storage volumes have fallen to their lowest level in 10 years. A harsh winter could lead to severe energy shortages and possible shutdowns of large parts of the economy.
With the main discussion currently focused on Russia’s potential role in the energy crisis, a new narrative may soon be making headlines. In a surprise gesture, the Dutch government indicated that in a situation of severe supply shortage, the Groningen gas field, the largest onshore gas field in Europe, could be partially and temporarily reopened. It seems that the term Dutch disease can take on a new meaning, moving from the paradox of a rentier state with abundant resources to the demonstration of Europe’s unrealism in the face of the risks of energy transition and current market powers. Dutch Minister Stef Blok has indicated that he is considering the potential reopening of the Groningen field, including five wells, including that of Slochteren, as indicated by Johan Attema, director of the Nederlandse Aardolie Maatschappij (NAM), the operator of the Groningen field. The reopening of the field, even in an emergency or an energy crisis, is politically controversial.
Until recently, the plan was that Groningen would be completely shut down by 2023, ending large-scale production and export of gas by the Netherlands with a bang.
Dutch media speculate that Minister Blok will call for a possible reopening of the Groningen field, a decision to be taken before October 1. If the minister decides to change the current closure plans, the whole Groningen debacle, as some see, will be prolonged. It is clear, given the current deplorable situation in the European energy sector, that Groningen is still needed. The current energy crisis could have serious consequences for the economies and well-being of EU Member States, changing the rhetoric in Brussels and in the respective European capitals.
Russia’s lack of natural gas supply (or the political will to supply more), the difficulty of rapidly increasing imports of Norwegian gas or other gases are jeopardizing Europe’s energy situation. At the same time, a possible shutdown of several electricity-intensive industries in Europe, such as fertilizers, chemicals and steel / aluminum production is on the table.
Related: Could Pipelines Solve America’s Water Crisis? Policymakers will face the direct implications of higher energy bills or possible energy deficits for consumers and industry. Both could lead to protests or political landslides in the next election. The threats of an energy crisis are widely debated, but no real solution, other than lower taxes, is available. Due to higher energy costs, a possible record high price point of 100 MMBtu or $ 250 per barrel of crude oil equivalent is very bad news for politicians, especially in the Netherlands, Germany, France and the United States. UK.
However, it remains unclear whether European politicians are aware of the role their own policies played in creating this crisis. Even with the partial restart of the Groningen field, which could alleviate some of the pain in Western Europe, there is a bigger problem that needs to be addressed.
By opening up the gas market to liberalization, without giving the parties the necessary tools, and pushing for a spot market, instability has been introduced into the system. Geopolitical powers are still at stake, while European utilities and suppliers have received little support from their governments.
At the same time, when long-term oil-indexed contracts with Russia were thrown out the window, many failed to realize that it could mean ceding full market power to NOCs, like Gazprom. Putin celebrated, knowing that he was handed the key to European markets, with the ability to manipulate fundamentals and prices at the same time. In the meantime, Europe has not succeeded in sufficiently diversifying the offer.
European leaders desperately need to reconsider their stance on Russian gas supplies and the future role of NordStream 2, which is still threatened by US sanctions and opposition from Eastern Europe.
However, it seems that Russian leader Vladimir Putin holds all the cards when it comes to natural gas in Europe. Without a substantially larger supply of natural gas in Europe, consumers and industry could well be facing a winter of discontent. Europe’s gas supply diversification strategy has been a failure, not only because of EU tactics and regulations, but also because of the continued focus on rapid energy transition, divestment of hydrocarbons and large-scale investments in renewable energies, without realizing that the backbone of the European economic system is still fueled by hydrocarbons.
Related: China’s Oil Consumption Hits 5-Year Peak
The current situation shows a major reality, the success of the energy transition does not rely on a unilateral approach. By relying too much on renewables, the market has become destabilized, but politicians and others refused to admit it. Destabilization could and should be avoided, recognizing that for the foreseeable future hydrocarbons, including coal, will play an important role in the European energy market.
At the same time, European politicians should also recognize that without hydrocarbons, not only the energy supply is threatened, but the hydrocarbon economy suffers. It is not yet fully understood by most, but without hydrocarbons, especially natural gas and petroleum, food and other primary sectors will be hit hard. The first shutdowns of fertilizer and steel companies have already been reported.
Brussels, London, Berlin and even The Hague should start to change their approach to the energy and economy of the future. Politicians should start listening to market analysts who have warned of a disruption in energy markets. The long-term European energy strategy should recognize the position of hydrocarbons as the backbone while investing in renewable options. Investments in storage, diversified supply and domestic production are crucial. Without it, supply giants like Putin’s Russia hold all the cards.
By Cyril Widdershoven for Oil chauffage
More reads on Oil Octobers: