- Europe’s energy crisis is straining the solidarity of European economies.
- Energy rationing across the region could last for several years.
- Zinc and aluminum smelters are curbing production due to soaring energy prices.
A post in the Financial Times this week reported on comments made by Shell’s chief executive Ben van Beurden. In the article, Ben van Beurden focused mainly on the criticality of Europe’s energy crisis. “That this is going to be somehow easy, or over, I think is a fantasy that we should put aside,” Van Beurden stated. The Shell chief executive also warned that Europe might need to ration access to energy for several years, as the crisis confronting the region will likely last more than one winter. No doubt, this will test the solidarity of European economies – especially as they try to maintain a common collective in their response to Russia’s invasion of Ukraine.
Russia moved early to limit gas supplies to Europe this summer. As a result, Europe could not build up any gas inventory ahead of the winter season. With each turn of the supply screw, gas flow lessens, and market prices rise.
Energy Crisis in Europe Causing Energy Costs to Sky-Rocket
According to the FT Europe’s benchmark, gas prices rose almost a third last week. In fact, they hit more than €343 ($345) per megawatt hour on Friday. These numbers are more than 30 times higher than prices two years ago and more than ten times their current level in the US.
This will have inevitable consequences in both the short and long term. For example, limited supplies will force European governments to ration energy, with the main priority being keeping homes warm as the winter bites. Indeed, governments have already drawn up rationing plans at both the state and EU level. However, they can only estimate the severity of the winter weather and the level of demand.
Rising energy costs have meanwhile already impacted energy-intensive producers. This includes closures of aluminum and zinc smelting facilities, cement works, and fertilizer plants. Many experts warn that a combination of energy costs and rationing could severely impact production in the months ahead.
In the longer term, if van Beurden’s predictions prove right, high-power costs in Europe will undermine the region’s ability to export. This will prolong a recession already considered a forgone conclusion over the winter.