The energy crisis in European Union

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The gas prices in Europe have reached the lowest level in three months in the last three months, as demand from industries and homes decreases.

The prices in the Dutch Title Transfer Facility (TTF) Europe’s most important trading hub, were on Monday at EUR150 per megawatt-hour. They were decreasing sometimes below this mark, and eventually, end up at EUR154 at the end of the working day.

The last time that prices dropped below the threshold of EUR150 was at the beginning of July.

The announcement comes just as it was announced that the European Commission announced the gas storage facilities in the EU which are crucial to meet the demand for winter and were at more than 90% capacity.

The good news is that it gives the region a much-needed respite in its struggle to end this energy-related crisis.

The current prices are quite a contrast from the record-breaking EUR349 set in the last week of August, which brought out the alarm in all capitals and led to the demand for a European-wide limit on wholesale prices for gas.

The prices, however, remain extremely high. One year ago, the TTF listed gas at EUR38 per megawatt-hour.

The high cost of gas has an impact on Europe’s entire energy industry.

Since it is the costliest fuel that is required to meet the power demands of all kinds Gas is what is the primary factor that determines the final cost of electricity. When gas prices rise and so do electricity costs for both businesses and households.

The EU is looking at different options that could lead to the possibility of targeted price caps as well as a new reference point for the TTF to reduce the influence of electricity prices on gas However, the member states remain split on the most appropriate and least risky – route to take.

The trend of lower the price of gas is likely to be the basis for the ongoing debate and could be a reason member state, such as Germany as well as the Netherlands have pushed for more cautious approaches instead of imposing market intervention.

“Declining gas prices are due to storages being now almost full and by mild temperatures so far,” Simone Tagliapietra who is an experienced senior fellow in the Bruegel think tank said to Euronews.

“Importantly, markets are seeing the demand decline, namely in the industrial sector.”

Savings on energy have become the mainstay in the response of Europe to energy crises. Savings are seen as essential in rebalancing the market’s supply and demand imbalance.

In July members of the states of the union agreed on the first-ever coordinated plan to cut the consumption of gas by 15% starting in August to March.

The plan was conceived as an early warning against Russian manipulating gas supplies fueled speculation in the markets and led to record prices.

The EU’s suspicions were confirmed after the Kremlin closed Nord Stream 1. Nord Stream 1 pipeline in response to Western sanctions.

A separate plan focusing on the need to save power at peak hours was approved in September, just before the end of September.

The industrial sector has been forced to reduce its production hours and reduce costs because of an energy-related crisis.

Production of industrial goods in the eurozone decreased by 2.3 percent in July, as compared to July of the previous month as per Eurostat. The confidence of consumers is now at the lowest point in history (-28.8 percent within the eurozone) which is lower than it did during the height that the COVID-19 epidemic.

A non-paper prepared by the European Commission showed large gas savings across the majority of EU countries, but some, such as Ireland, Greece, Sweden, and Spain have, in fact, increased consumption.

In the last month, European Central Bank Christine Lagarde stated that the outlook for the economy appeared to be “darkening” and business activity will “slow substantially.” Lagarde also forecasted two consecutive periods of economic contraction during winter, leading to a recession in technical terms.

Analysts have stated that although a recession is brutal for Europeans however, it will also reduce demand and drive gas prices even lower.

You’re not aware of how dire it could be in Europe this year.

“Europe has “unprecedented dangers” to its natural gas supplies this winter after Russia cut off most pipeline shipments and could wind up competing with Asia for already scarce and expensive liquid gas that comes by ship,” the International Energy Agency (IEA) stated.

The Paris-based IEA stated in the quarterly gaz report, which was released this morning the European Union (EU) countries will have to cut down on their use by 13% in the winter months in the event of the complete Russian shut-off in the conflict that is raging in Ukraine. “Much of that cutback would have to come from consumer behavior such as turning down thermostats by one degree and adjusting boiler temperatures as well as industrial and utility conservation,” the group wrote.

Dependence of the EU on natural gas imports from Russia until 2020

Another potential risk identified during the research was a cold winter storm, which would be especially difficult because the underground reserves of gas flow slower towards the end of the season, due to lesser gas, and lower pressure inside storage caverns. The EU has filled storage up to 88% over its target of 80% by the time winter arrives. The IEA predicted that the 90% required as part of their Russian cut-off scenarios.

Companies in Europe have already reduced the use of natural gas, often simply by putting off energy-intensive activities like making steel or fertilizer. Meanwhile, smaller enterprises like bakeries are experiencing a pinch in their expenses.

The high cost of gas that is used to heat homes, produce electricity, and many other industrial processes, is contributing to record inflation for consumers of 10% across the 19 EU member states that utilize the euro, and draining the purchasing power of consumers so that experts predict that there will be a recession by the close of the year and the beginning of the next.

European utilities and governments have contributed to the Russian deficit by buying costly LNG liquefied natural gas also known as LNG. It ships from countries like Qatar, the U.S., and Qatar by procuring a larger pipeline supply via Norway as well as Azerbaijan.

The objective is to keep storage levels from falling so far that governments have to ration gas to companies. Storage of gas must be over 33% to guarantee the winter to be safe in the opinion of the IEA as well as levels that fall below that could cause shortages in the event of a cold winter.

A lower level also makes it more difficult for Europe to fill up storage for next summer, while more reserves from conservation could assist in lowering prices that are extremely high. European officials believe that the reduction in Russian gas is a form of energy blackmail to pressurize governments about their support for Ukraine and measures against Moscow.

Since Russia stopped its flow this month via one of the pipelines, the Nord Stream 1 pipeline running beneath the Baltic Sea to Germany, and the pipeline that was parallel to Nord Stream 2 which was constructed but never operational following the fact that Germany refused to recognize it was damaged by underwater explosions which European governments claim have been sabotage.

The demand for gas liquefied has increased prices and strained supply to the point that countries with lower incomes in Asia are unable to afford it. Bangladesh is suffering from massive power blackouts, and Pakistan has been experiencing blackouts on a continuous basis and has reduced the hours of operation for factories and shops in order to conserve electricity.

“Interregional competition in LNG procurement may create further tension, as additional European needs would put more pressure on other buyers, especially in Asia, and conversely cold spells in Northeast Asia could limit Europe’s access to LNG,” the agency noted.

A gas shortage across Europe has also denied Asian nations of the small amount of floating regasification terminals that were anticipated to play an important part in LNG imports from Southeast Asia. Europe is able to secure 12 vessels and plans to add nine more.

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