As the economy recovers from the epidemic, demand for gas is increasing. However, supplies are limited, and costs are steadily rising.
Gas can aid in the decarbonization of power, but it is also a source of pollution.
Europeans are preparing for a potentially long, cold, and costly winter. Rising energy costs are expected to raise gasoline prices as well as the cost of many other common items, such as food.
The causes of the European energy crisis are complicated and interrelated, demonstrating how complex and interwoven the global energy system is. Here are five essential ideas that can help you understand some of the challenges that are causing the energy crisis.
1. There is a robust recovery in global demand
Natural gas usage is expected to fall by 1.9 percent in 2020. This was partially due to shifts in energy use during the brunt of the pandemic’s disruption. However, a warm winter in the northern hemisphere contributed to the situation.
The International Energy Agency (IEA) predicts a 3.6 percent increase in gas consumption in 2021 in its Global Gas Security Review. If uncontrolled, worldwide gas usage may be 7% greater in 2024 than it was before the epidemic.
Despite the fact that gas consumption is anticipated to decline despite the shift from coal to gas, the IEA believes governments will need to regulate to guarantee that gas-related emissions do not become an issue. The group claims that “more ambitious measures are required to transition to a net-zero route.”
2. Gas imports are Europe’s main source of energy
Gas output in Europe is dwindling. Several North Sea gas reserves have gone dry, as have a number of Dutch gas fields, including Groningen, which is set to close in mid-2022.
As a result, Europe is becoming increasingly reliant on gas imports, particularly from Russia and Norway.
3. Prices are high and may continue to rise
So far in 2021, European gas prices have increased over 600 percent.
In early October, wholesale gas prices in the United Kingdom spiked by 37% in just 24 hours. In response to rising expenses, a lobby group comprising steel, chemical, and fertilizer companies has asked the UK government for assistance.
Wholesale gas prices have prompted the bankruptcy of numerous minor energy suppliers in the UK market, as well as the halting of production in several sectors. “Our vulnerability to unpredictable global gas prices highlights the significance of our strategy to develop a robust, home-grown renewable energy sector to further decrease our dependency on fossil fuels,” said Kwasi Kwarteng, the UK’s Secretary of State for Business, Energy and Industrial Strategy.
4. Winter is upon us once more
The start of 2021 in the northern hemisphere was marked by a series of bitterly cold severe weather occurrences. A polar vortex hit large swaths of the United States, bringing snow, ice, and freezing temperatures as far south as Texas.
Another bitterly cold winter in the north would add to the strain on a gas supply that is already overburdened.
Low gas reserves will make it difficult to respond to growing demand throughout the cold season. A shortage of transportation capacity has hampered the chartering of ships to carry LNG around the world, making responsiveness to increases in demand both difficult and costly. “In each of the previous three northern hemisphere winters, daily spot LNG tanker rental rates have soared above $100,000,” the IEA reports. “And during the unexpected cold period in northeast Asia in January 2021 – amid actual constraints of available transport capacity – it touched an all-time high of well over $200,000.”
5. The energy transition is challenging
Gas burns cleaner than oil or coal, and it is frequently utilized to generate power as a replacement for both. Gas is still a source of greenhouse gas (GHG) emissions, despite its role in helping to decarbonize power generation.
“A substantial source of emissions that has to be decreased,” according to the International Energy Agency (IEA), “particularly in established economies where most of the growth and substitution potential has already been explored.”
Methane, a powerful GHG, makes up the majority of natural gas. According to the US Energy Information Administration, “natural gas and petroleum systems, as well as abandoned oil and natural gas wells,” account for about a third of methane emissions.
Although the total rise in world gas consumption is anticipated to be “quite modest” between 2020 and 2024, the IEA warns it will be too high to fulfill key environmental goals.
Between 2020 and 2024, the IEA predicts a 9% rise in yearly gas consumption, substantially greater than the demand growth that would be required to meet the objective of net-zero emissions by 2070.
According to the IEA, decarbonizing the gas infrastructure will be a top priority in order to meet net zero emissions objectives by 2050, which would need widespread usage of low-carbon gases: “Policies adopted in the short to medium term must support this deployment in order to prepare for such a major shift for gas networks and industry. Policymakers should address new security of supply concerns that are expected to develop throughout this shift in this regard.”