Economic Watch: Europe beset by relentless natural gas crunch
BRUSSELS, Dec. 23 (Xinhua) -- Europe is heading toward an energy crisis as the storage of natural gas runs low and a supply shortfall remains worrying, a think tank has warned this week.
When an energy crisis comes, gas in storage will deplete rapidly in Europe, the Brussels-based think tank Bruegel said on Tuesday, adding that the natural gas supply balance must be monitored closely in the coming months.
As the cold weather sets in, demand for natural gas to heat homes and generate electricity at power plants will grow. Yet there is little hope of an increase in supplies as the European Union remains embroiled in a row with Russia, its single biggest exporter of natural gas.
ON CUSP OF ENERGY CRISIS
The natural gas price frenzy in Europe shows no signs of easing. European prices for natural gas exceeded 2,150 U.S. dollars per 1,000 cubic meters on Tuesday for the first time in history, according to Intercontinental Exchange's London clearing house.
The Dutch TTF gas futures traded on Tuesday at a price nearly doubled that at the beginning of this month and nearly tenfolds of the level from a year ago.
The storage level of natural gas in Europe hit a six-year low in December. Europe had 690 terawatt hours of gas in storage in mid-December, according to a report by Bruegel, a Brussels-based think-tank. The amount is below the minimum volume recorded in any of the past five years, said the report.
The EU is heavily reliant on imports of natural gas, with 90 percent of its total supply coming from countries outside the bloc in 2019. Around 40 percent of its imported natural gas came from Russia that year.
The hope is slim that flows from Russia to Europe can increase significantly given that the soaring demand in other parts of the world has led to a supply squeeze.
FEELING THE PINCH
Surging natural gas prices in the EU have already taken a toll on the economy.
Inflation rates in the region are hovering at levels unseen for decades. Inflation in the 19-member eurozone climbed to 4.9 percent in November, a 25-year high. In the 27-member EU, the rate stood at 5.2 percent.
The European Central Bank said energy inflation accounted for more than half of headline inflation in the euro area.
The rise in natural gas prices has found its way into households and factories across the EU. In Italy, an estimate by local media found that households will have to pay 155 euros (175.54 U.S. dollars) more for their consumption of natural gas in 2021, up 15 percent year on year. Electricity bills are expected to rise 30 percent.
For a lot of small businesses that have little wriggle room to weather the crisis, surging energy prices are tantamount to a test of survival.
So far there is little sign that the imminent threat of an energy crisis can be easily tackled, especially against the backdrop of a green energy transformation and low domestic production in the region.
The EU has committed itself to an ambitious goal of carbon neutrality by 2050. To achieve that target, the proportion of renewable energy in the energy mix will be lifted to 40 percent by 2030.
Analysts say the European Commission's Green Deal to some extent aggravates the natural gas crunch in Europe given its reliance on natural gas.
In a bid to reduce emissions, power plants in the EU have rushed to replace coal with natural gas, which generates fewer emissions. And discussions have been ongoing about the possibility of including nuclear and natural gas in the EU's green investment list.
However, European gas production has decreased in the last few years because of the closure of gas fields, Bruegel said in the report.
Contrasting to the normal economic rule that higher prices will naturally boost supply or bring down demand, the demand for natural gas, according to Bruegel, has been highly inelastic in spite of the price hikes since September.
As Europe braces for low temperatures, the energy crisis sweeping the region is gaining speed. Experts warn to expect the worst in late January and early February when renewable sources such as solar and wind power will contribute less to Europe's power supply. Enditem