Nat GAs Europe Crisis Poss Black Outs The combination of low natural gas inventories, lack of investment in natural gas production as well as the outright elimination of natural gas production, inadequate natural gas storage, an over-reliance on renewables and high stimulus-fuelled demand has led to massive increases in electricity prices throughout Europe (including the UK) and could result in widespread power/heating shortages over the months ahead. The issue is summarised in the following excerpts from recent Bloomberg and WSJ articles (linked HERE, HERE, HERE and HERE):
“Europe has an energy problem, and it could get worse once winter grips the continent. Gas and electricity prices are soaring, windmills are standing idle for lack of wind and shuttered coal-fired power plants are being brought back into use. There are even suggestions to use diesel generators for private generation. But oil isn’t the solution to the continent’s energy woes.”
And:
“As we head toward winter, the continent’s natural gas stockpile stands at 75% of the level it was at this time last year — the lowest for the time of year since 2013. That’s raising prices and stoking concerns about shortages and power blackouts over the coming months.”
And:
“Europe could face blackouts this winter if the weather gets cold, Goldman Sachs Group Inc. said, warning that the region’s industrial users will need to curb consumption. The continent is running out of time to refill its depleted storage sites before the start of the heating season in about a month, with inventories at their lowest level in more than a decade for this time of the year.”
And:
“While the U.K.’s supply squeeze is particularly acute, Europe as a whole is suffering from insufficient inventories just weeks before the heating season starts. This predicament has been years in the making, with the region winding down its own gas output and boosting reliance on Russia and on intermittent wind and solar power. With those sources falling short this summer, and demand rising as economies emerge from the pandemic, prices have soared.”
And:
“A giant Dutch natural-gas field once pumped enough fuel to cover the current needs of Germany, Europe’s largest economy. Next year the field is shutting down over environmental concerns.
Natural-gas supply shortfalls have led to record prices for the fuel and electricity, stoking fears of a shortage and spotlighting European efforts to cut greenhouse-gas emissions. The conflict is one economies world-wide face as they try to adopt cleaner energy sources.
The European Union taxes carbon emissions to discourage use of fossil fuels and has promoted renewable sources of energy to replace them. Some countries have also targeted production. Denmark has committed to stop pumping oil and gas by 2050. The Netherlands is shutting down its vast field, near the town of Groningen, amid public pressure over earthquakes attributed to it.”
Europe’s immediate energy shortage could be alleviated in two ways. First, the Nord Stream 2 gas pipeline could be brought on line, enabling a large increase in gas supply from Russia to Western Europe. Second, the coming winter could be milder than usual.
Unfortunately, these potential solutions to the immediate problem are longshots. The first is not a good bet because Nord Stream 2 probably won’t be fully certified until January-2022 at the earliest, which means that it probably won’t come on line soon enough to address the coming surge in heating-related demand. And it is unwise to be relying on a mild winter, because according to climate-cycle analyst Shawn Hackett the Northern Hemisphere could be heading into the most severe winter in 200 years.
The ECB and the BOE might attempt to lessen the economic hardship caused by an energy shortage by providing additional monetary accommodation, but while central banks can create money out of nothing they can’t create fuel and electricity. On the contrary, increased demand stemming from easy monetary policy is the last thing needed by an economy hampered by supply shortages.
Europe needs to get more natural gas in both the short-term and the long-term. This almost certainly will involve piping more gas from Russia and importing more gas via LNG carriers. Aside from that, the investing/speculating implications of Europe’s increasingly serious energy shortage are not yet clear. One possibility is that during the coming November-March period there will be large gains in both the Dollar Index and the gold price due to a panic out of the euro.