by Shaun Richards
A major story and event of 2022 has been the energy crisis which has been one if the main factors in the ongoing cost of living crisis. It is easy to forget ( partly because government’s and central banks are directing us away from it) that there were issues even before the war in Ukraine which has made things even worse. Last week Russia decided to turn the screw a little further.
Gazprom said it had to halt ANOTHER turbine at a compressor station connected to the Nord Stream pipeline, curbing natural gas supply to Europe even more Siemens is performing maintenance on them, but sanctions interrupted delivery ( @SStapczynski )
The situation continued to worsen as the week developed leading the Financial Times to report this.
Russia cut capacity on the main gas export pipeline to Germany this week by 60 per cent, sending ripples across the continent as western officials became convinced that Moscow is weaponising its gas exports in response to EU sanctions following the full-scale invasion of Ukraine.
We can look at the consequences via a country which has had an energy policy regularly praised by the FT which is Germany as we are seeing developments which are extraordinary even for these times.
The Crisis in Germany
The shortage of gas became so acute that the Climate Protection Minister has put out an official statement.
“The situation on the gas market has deteriorated in recent days. The missing quantities can still be replaced, and the gas storage tanks are still being filled, albeit at high prices. Security of supply is currently guaranteed. But the situation is serious. We are therefore further strengthening precautions and taking additional measures to reduce gas consumption.”
There are obvious contradictions because if the gas can be replaced and supply is secure why do we need the statement? In essence the need to reduce gas consumption is the significant part as opposed to his rhetoric. Perhaps it is the translation but the use of “tools” is something central bankers so when things are going badly wrong like they have with inflation.
For months we have been in the process of sharpening tools, creating new ones and removing existing obstacles.
Along the way there is something that we have been worried about since late last year that this will lead to companies and businesses being forced to shut. This is a big deal in a country which is a large manufacturer.
We will reduce gas consumption in the electricity sector and in industry and force storage tanks to be filled. Depending on the situation, we will take further measures.”
The official response has him so embarrassed he sort of tries to slide by without spelling it out.
To this end, power plants that are already available to the electricity system as a reserve are being upgraded in order to be able to return to the market in the short term.
But he is unable to fully do so.
That means, to be honest, more coal-fired power plants for a transitional period.
Some of you may be thinking that there is a more logical alternative.
Germany’s three remaining active nuclear power plants have a capacity of 4 gigawatts and are scheduled to go off the grid by the end of this year. Their lifespan will not be extended as the government has concluded the technical and safety hurdles are too high. ( Financial Times)
Presumably that claim also covers the nukes that were closed at the end of 2021. Whether that is true is entirely another matter as Germany’s Green Party of which Minister Halbeck is a member is anti-nuclear. So it would appear that this option is being willfully ignored.
The six nuclear power plants generated 12 percent of German electricity last year; the final three produce about 5 percent. ( Politico)
This mornings producer prices release shows the impact on both businesses and households in May.
Energy prices in May 2022 were on average 87.1% higher than in the same month last year . Compared to April 2022, these prices increased by 2.5%. The highest impact on the year-on-year rate of change in energy was natural gas in distribution, up 148.1% from May 2021. Power plants paid for natural gas 241.2% more than a year earlier. Natural gas was 210.7% more expensive for industrial customers and 168.3% for retailers.
So extraordinarily higher than last year and another 2.5% on the month.
The UK
Whilst the situation here is different in that Russian gas pipelines do not flow to the UK and it has turned out we got something right by the switch towards LNG we see that politicians are pack animals just like central bankers.
In May, I asked National Grid to explore keeping 3 coal power stations open this winter, if needed. With uncertainty in Europe following the invasion, it’s right we explore all options to bolster supply. I’m pleased EDF has today confirmed West Burton will remain online. ( Kwasi Kwarteng last Tuesday )
So we are in the midst of something of a dash for coal and contrary to the rhetoric about new nuclear plants I believe that the UK will close one this summer. So we will also turn down the opportunity to maximise what we have during this crisis.
There is another issue where there are copy-cat policies going on if we return to Germany and Minister Halbeck.
We are accelerating the expansion of renewable energies in an unprecedented way,
In the UK Kwasi Kwarteng announced this last week.
Latest data: 10GW of renewable power currently being built; 12GW extra on its way
But you see these things are effectively innumerate. The UK has about 25 GW of wind power capacity but that is producing only 4.5 GW as I type this and it is forecast to decline as the day progresses and be even lower tomorrow. So assuming all the hype above is true then we would be getting 4 GW from it rather than the 22 GW stated. The fact that it ebbs and flows gets ignored.
The UK has a relatively stronger position in that it does produce some of its own gas and oil and energy minister Greg Hands is apparently keen to point that out.
Operational since 2001, @TotalEnergiesUK‘s Elgin Platform in the Central North Sea produces 5% of the UK’s gas demand. Fantastic to visit today and understand its key role in UK energy security now and in the future.
The US
The US is in one of the strongest positions of all in terms of overall energy resources but as Javier Blas points out this is breathtaking.
White House Press Secretary calls on US oil refiners to lower gasoline prices: “We see it as a patriotic duty […] We are calling on them to do the right thing”
The Biden administration started in office bu blocking fossil fuel plans but seems to expect the oil industry to invest it in. This from former head of the US Federal Reserve Janet Yellen is just as bad.
Refinery capacity is declined in the United States and oil production has declined. I think that producers were partly caught unaware by the strength of the recovery in the economy and weren’t ready to meet the needs of the economy.
This was until recently US government policy….
Comment
Before this recent phase the world was already having energy issues. We have been told that crude oil is about ti run out many times in my life. But that has developed into an issue created by the fact that the easier and cheaper supplies either have been or are presently being used. To that we have seen a push for sources of power which are unreliable and then to claim it as a triumph.
Professor John Mathews of Macquarie University in Australia, looks back on what Germany has achieved so far with its unique energy policy and concludes that it has been a spectacular success, whatever its detractors may say.
That was from October 2017 and we can now file “spectacular success” in my financial lexicon for these times. Also the COP26 agreement to end coal has morphed into this.
we know now that coal demand will hit a record high in 2022, and likely another one in 2023 ( Javier Blas)
As it happens the UK is burning coal today to produce some 0.5 GW of electricity which it looks like we are exporting to France.
Energy policy is an utter mess where our political class have utterly failed us but keep doing this.
I’ve been getting away with it all my life (getting away) ( Electronic )
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