Europe's energy crisis set to worsen as winter bites

Households could be asked to use less energy and rolling blackouts a possibility
Europe's energy crisis set to worsen as winter bites

Energy prices in Europe are repeatedly breaking records even before winter really kicks in. 

Energy prices in Europe are repeatedly breaking records even before winter really kicks in, and one of the most damaging cost crunches in history is about to get worse as the temperature starts to drop.

A super price spike in Britain last month forced some industrial companies to cut production and seek state aid, a harbinger for what could play out widely in Europe just as it contends with a resurgence of Covid-19.

For governments, it could mean tension with neighbouring countries by moving to protect supplies. For households, it could mean being asked to use less energy or even plan for rolling blackouts.

The trouble is that any fix is unlikely to come from the supply side any time soon, with exporters Russia piping only what it has to and Qatar saying it’s producing what it can. 

The energy industry is, instead, faced with relying on “demand destruction,” said Fabian Roenningen, an analyst at Rysted Energy.

“We have seen it over the last couple of months already, and in many industries, it will most likely continue and even increase.

It’s just not profitable to operate for a lot of the players in the current market conditions.

The outlook adds to the sense of foreboding in Europe. The region is back at the epicentre of the pandemic again with Covid-19 cases surging and fears about the new Omicron variant identified in South Africa swirling the globe. 

Restrictions are being tightened in some countries, while household budgets are being squeezed by rampant inflation. 

On top of that, freezing weather could mean the lights going out. A return to lockdown, like in Austria, would help curb power demand, though few governments want to do that.

France, Europe’s second biggest economy, is particularly at risk. The possibility of a chill in January and February is causing concern for the nation’s grid operator. 

Availability at nuclear stations, the workhorse of the French power system, is low after the pandemic delayed the maintenance of some reactors, according to a report last week.

Power prices there are near a record as a cold blast creeps into France and is expected to take hold early this week when workday demand starts to rise.

Last winter, the grid operator appealed to households to use less energy at peak times and activated some demand reduction contracts with manufacturers when things got really tight.

The next step would be to reduce voltage across the network and then rolling blackouts of two hours per region as a last resort. All that would come ahead of a presidential election.

“If there’s a deep cold snap and there’s no wind, things could become tight given the lesser availability of nuclear plants and the recent closure of dispatchable generation assets using coal,” said Nicolas Goldberg, a senior manager in charge of energy at Colombus Consulting in Paris. 

“If it’s getting really cold and there’s no wind, it may become a problem.”

France is also a key exporter of electricity to neighbouring countries, meaning that the effects of a crisis would reverberate in Germany, Spain, Italy and Britain. 

The situation is already so dire this early in the winter season because of a blistering rally in natural gas prices. 

Stores of the fuel, used to heat homes and to generate electricity, are lower than usual and are being depleted quickly. 

Analysts have warned that gas stores could drop to zero this winter if cold weather boosts demand.

Rolling blackouts are a possibility, warned Jeremy Weir, chief executive of Trafigura Group, a Swiss commodity trading house.

“If the weather gets cold in Europe there’s not going to be an easy supply solution, it’s going to need a demand solution,” said Adam Lewis, partner at trading house Hartree Partners.

On the supply side, what Russia does next will be key. Vladimir Putin signalled he would help Europe with more supplies to stabilise the market, but while shipments have recovered after a slump at the start of November, they are low compared with last year. 

How much gas Russia sends to Europe in December remains an even bigger mystery.

The long-awaited start of the Nord Stream 2 pipeline to Germany from Russia would ease the continent’s energy crunch. The project is finished, but has run into regulatory hurdles and it’s unclear when flows will start.

More in this section

The Business Hub
Newsletter

News and analysis on business, money and jobs from Munster and beyond by our expert team of business writers.

Sign up
Lunchtime
News Wrap

A lunchtime summary of content highlights on the Irish Examiner website. Delivered at 1pm each day.

Sign up
Revoiced
Newsletter

Our Covid-free newsletter brings together some of the best bits from irishexaminer.com, as chosen by our editor, direct to your inbox every Monday.

Sign up