Thursday, September 23, 2021

GWPF Newsletter: Europe's energy crisis goes from bad to worse as Russia keeps firm grip on supply


Skyrocketing energy prices threaten to cripple Europe’s economy

In this newsletter:

1) Europe's energy crisis goes from bad to worse as Russia keeps firm grip on supply
Bloomberg, 20 September 2021

2) Skyrocketing energy prices threaten to cripple Europe’s economy, 18 September 2021
3) Energy crisis could last for months, Boris Johnson admits as companies warn of collapse
The Independent, 20 September 2021
4) Taxpayers face multibillion-pound bill to bail out failing energy firms, soaring bills and empty supermarket shelves
Daily Mail, 20 September 2021
5) Energy companies request multibillion-pound emergency handouts to help them survive energy crisis
Financial Times, 19 September 2021
6) Energy prices will push up inflation across Europe, economists warn
Financial Times, 19 September 2021

7) David Green: Suicidal energy policy is empowering Britain's enemies
The Daily Telegraph, 19 September 2021
8) Simon Heffer: Environmental hubris has left Britain vulnerable to Putin's gas blackmail
The Daily Telegraph. 18 September 2021
9) Matt Ridley: How Britain’s shale revolution was killed by green lies and Russian propaganda
The Critic, December 2021

Full details:

1) Europe's energy crisis goes from bad to worse as Russia keeps firm grip on supply
Bloomberg, 20 September 2021

European gas prices surged more than 10% as Russia is keeping its grip on the market, opting to cap additional flows to the continent.

Gazprom PJSC opted not to flow more gas to Europe via Ukraine in October, according to the results of an auction on Monday. There were also signs Russian flows via the key Yamal-Europe pipeline will remain limited, with traders booking just a fraction of the capacity offered to flow gas next month into Germany via the Mallnow compressor station.

The cap on additional Russian supplies is leaving Europe starved for the fuel it needs to boost buffer inventories before the winter. With just a few weeks to go before the start of the heating season, storage sites are less than 72% filled, the lowest level for this time of year in more than a decade. The supply crunch also boosted the cost of producing electricity, sending prices up in Germany.

“European gas and power prices continue to trade higher, with gas supplies not showing any signs of picking up,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. “Especially after Russia failed to book any extra capacity for October through its pipelines to Europe.”

Benchmark European gas prices traded in the Netherlands surged as much as 16% to 75.33 euros a megawatt-hour, while prices for next-month in the U.K. gained 16% to 188.10 pence a therm.

Gazprom didn’t book any of the 9.8 million cubic meters a day of capacity offered at the Sudzha network point or the 5.2 million cubic meters a day at Sokhranovka, both on the border between Russia and Ukraine. Traders booked only about 35% of the gas capacity offered for October at Mallnow, where Russia’s Yamal-Europe pipeline ends.

The lack of bookings “will likely force a major year-on-year drop in Russian supply this winter,” James Waddell, head of European gas at Energy Aspects in London, said before the auction.

The gas crisis is sending ripples through the power market, with year-ahead German power, a European benchmark, surging as much as 4.7% to 104.80 euros a megawatt-hour.

High energy prices are also threatening Europe’s economic recovery, with factories curbing output and U.K. energy suppliers going out of business. It’s also adding to concerns about inflation, with euro-area consumer prices rose 3% in August, the highest in a decade.

Full story
2) Skyrocketing energy prices threaten to cripple Europe’s economy, 18 September 2021
Surging energy prices in Europe are hurting more than just consumers. The price spikes have started to hit industrial activities, threatening to deal a blow to the post-COVID recovery in European economies with a triple whammy of reduced consumer purchasing power, lower industrial production, and higher operating costs.  
Giant European firms, from chemicals and mining to the food sector, say sky-high gas and electricity prices are hitting their profit margins and forcing some of them to curtail operations. 

Some factories have shut down because of record natural gas prices. More idling of industrial activity across Europe is likely in the coming weeks, analysts say.  
Meanwhile, the record European natural gas prices are sending Asian spot prices of liquefied natural gas (LNG) to record levels for this time of the year—between peak summer demand and ahead of the winter heating season. 

Europe’s tight gas market, low wind speeds, abnormally low gas inventories, and record carbon prices have combined in recent weeks to send benchmark gas prices on the continent and power prices in the largest economies to record highs. Almost daily, gas and power prices in Europe surge to fresh records, putting pressure on governments as consumers protest against soaring power bills.
It’s not only consumers that struggle with the record energy prices. Industries are starting to feel the heat, too. 

CF Industries, a manufacturer of hydrogen and nitrogen products, said this week it was halting operations at both its Billingham and Ince manufacturing complexes in the UK due to high natural gas prices.

“The Company does not have an estimate for when production will resume at the facilities,” CF Industries said. 

Norway-based Yara, one of the world’s top ammonia producers, is curtailing production due to the record-high gas prices. 

“Record high natural gas prices in Europe are impacting ammonia production margins, and as a result Yara is curtailing production at a number of its plants. Including optimization of on-going maintenance, Yara will by next week have curtailed around 40% of its European ammonia production capacity,” the company said on Friday.

Germany’s large bioethanol producer CropEnergies AG said its operating profit for the second quarter of its fiscal year nearly halved as “The significantly higher net raw material cost and the recent rise of energy prices to record levels were the main burdens on the results.” 

Also in Germany, the largest chemicals producer in Europe, BASF, and the top copper producer, Aurubis, also flag high energy prices as a significant burden on their profits and profit margins. 

Major industrial companies in France, such as top sugar producer Tereos and starch producer Roquette Freres, tell Bloomberg that record-high energy prices are putting inflationary pressure on their financials and on “every other cost.” 

All those headwinds for Europe’s industry could be just the beginning, especially if the coming winter in Europe and Asia turns out colder than usual, driving up further demand for gas and power. 

Industries in Europe face the risk of blackouts in a cold winter, Goldman Sachs warned this week. 
Full post
3) Energy crisis could last for months, Boris Johnson admits as companies warn of collapse
The Independent, 20 September 2021

Boris Johnson has admitted the energy crisis could last for months, as the government scrambles to protect businesses and consumers from a sharp increase in gas prices, brought about by a surge in global demand and a shortage of wind power in the UK this summer.

Business secretary Kwasi Kwarteng will meet gas industry bosses on Monday to discuss the issue, after wholesale costs spiked 70 per cent in August alone.

The minister, who has acknowledged that it is a “worrying time” for customers, held talks with the regulator Ofgem on Sunday, insisting the public would be protected by the government’s energy price caps.

Boris Johnson also sought to reassure the public by saying he had “no doubt that supply issues will be readily addressed”. However, there are fears that more small energy suppliers could fold, after four firms went bust recently.

It has been reported that Bulb, the country’s sixth-largest energy provider, is seeking a bailout as a result of the difficulties facing the industry.
Full story
4) Taxpayers face multibillion-pound bill to bail out failing energy firms, soaring bills and empty supermarket shelves 
Daily Mail, 20 September 2021
Taxpayers could be hit with a multibillion-pound bill as energy bosses try to ease soaring fuel costs which is leaving suppliers on the brink of collapse.

Ministers are in talks with energy companies over a bailout that could help the beleaguered sector - which has seen wholesale gas prices increase by 70 per cent since last month.

The move could see Britons across the country footing the bill for dozens of failing gas and electricity companies that are on the verge of collapse, with sources claiming the bailout could reach billions of pounds.

The UK's sixth largest energy company, Bulb, was among those seeking a bailout today.

It comes as the gas crisis continues to threaten the supply of food and the NHS.

Under the new plans, consumers whose suppliers are on the brink of collapse could be temporarily transferred to another company, The Times reports.

The Government could provide a loan to energy companies taking on the customers of failed suppliers or even take over the running of small suppliers on the verge of collapse by appointing a 'special administrator'.

Speaking to BBC News Boris Johnson said the problem should be 'temporary'.

He said the energy squeeze was a result of the 'world waking up from pandemic shutdown like everyone ''going to put the kettle on at the end of the TV programme''.

In the past month, five suppliers have already been forced to close and analysis by business management consultants Baringa shows that 39 suppliers could also collapse in the next 12 months, The Times reports.

Full story
5) Energy companies request multibillion-pound emergency handouts to help them survive energy crisis
Financial Times, 19 September 2021

The UK’s largest energy groups are requesting a multibillion-pound emergency package from the government to help them survive the crisis sparked by high gas prices, including the creation of a “bad bank” to help absorb potentially unprofitable customers from failing smaller rivals.

UK business and energy secretary Kwasi Kwarteng is holding emergency talks with regulator Ofgem on Sunday and is due to meet energy suppliers face-to-face on Monday, amid fears that dozens of smaller challenger companies could go bust in the coming weeks due to record wholesale costs of natural gas and electricity.

People familiar with the weekend talks say the largest energy suppliers are asking the government for substantial support to absorb potentially millions of customers from failing companies given the scale of the crisis, and may require the creation of a “Northern Rock-style bad bank” to house lossmaking customers they are unable to absorb.

While no decision has yet been taken, the proposals to the government reveals the scale of support the industry believes will be required to avoid causing long-term damage to the sector should a large number of energy suppliers fail in the coming weeks.

Kwarteng is said to be examining the proposals and has accepted that significant intervention may be necessary, fearing the existing contingency plans may not be sufficient, with allies saying he was looking at “Plans C, D and others”.

“We need a lot of contingency plans in place,” said one ally of the business secretary.

Most household bills are not enough to cover the cost of supplying new customers, making large energy companies extremely reluctant to take them on without government support, potentially including state-backed loans or other measures.

Talks with the government had focused on three different approaches, four people familiar with the situation confirmed, while stressing that ministers were “keen not to reward failure”.

One suggestion is for the formation of a “bad bank” which would take on lossmaking customers from failed suppliers, in a move reminiscent of the peak of the financial crisis in 2008, and which would be designed to avoid weakening otherwise strong companies.

“This could get the industry through the current period of crisis,” one person familiar with the talks said.

“By parking the problem in a bad bank, it would make it easier to sort out the immediate crisis and then take stock longer term. It would allow the government to handle several suppliers going bust at the same time.”

A second person, however, cautioned that such an approach could be difficult to manage in practice, especially given that suppliers all run on different operating systems. There would also be a question of whether Ofgem would take responsibility for customer care and handling complaints. 

Another option would see the government underwrite debt for the larger suppliers, if they were to incur losses by taking on customers. 

A third route would see Ofgem stepping in and, instead of shifting the customers of the failed suppliers to another provider, it would administer the company through the immediate crisis, effectively leading to its nationalisation, with the government on the hook for any losses.

Two people familiar with the talks said the cost of the eventual package could run to billions of pounds for the government given the number of companies that are expected to fold in the coming weeks.

Five smaller suppliers have already gone out of business since the start of August as surging wholesale prices have left companies with insufficient hedging strategies or weak balance sheets unable to cover the cost of the energy they had committed to supply.

The business secretary has been warned by the industry that out of 55 companies in the sector, only between six and 10 could be left standing by the end of the year.

Full story (£)
6) Energy prices will push up inflation across Europe, economists warn
Financial Times, 19 September 2021

Soaring energy prices will push up broader inflation across Europe this year, hurting consumers and threatening the region’s post-pandemic economic recovery, economists are warning.

Benchmark European gas prices have already tripled this year, even before peak winter demand kicks in. Norway’s Equinor, one of Europe’s biggest gas suppliers, said last week that high energy prices could last well into 2022 and warned of possible price spikes.

“Brace for a surge in eurozone gas inflation,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics. Rising energy prices will drive “an acceleration in the eurozone’s headline inflation,” added Daniel Kral, economist at Oxford Economics.

There are multiple reasons behind the price surge, from low European energy stocks and US storms that curbed Texas gas exports, to rebounding demand as economies reopen. Climate change policies that seek to incorporate the rising price of carbon have also had an effect.

The eurozone’s consumer price index for energy has already risen to its highest level since records began in 1996. In August, its 15.4 annual per cent increase, the series’ biggest jump since the global financial crisis, pushed the eurozone’s headline inflation rate to a decade high of 3 per cent.

That is well above the European Central Bank’s 2 per cent inflation target. But ECB officials and economists have said they expect the rise to be temporary, because of one-off factors such as supply chain disruptions, as the developed world emerges from the pandemic.

Even so, a prolonged rise in energy prices could derail those inflation forecasts. Higher energy bills would also hit household budgets and consumer confidence, threatening economic recovery.

Full story (£)
7) David Green: Suicidal energy policy is empowering Britain's enemies
The Daily Telegraph, 19 September 2021

Authoritarian regimes are exploiting the fact that the West does not have realistic carbon policies

Rising gas prices are altering the international balance of power in favour of dictatorships. Britain faces, on the one hand an expansionist Russia - on the other a Communist China which by its own admission is intent on becoming the world's dominant economic and military power.
Energy supply is no longer a simple question of fuel poverty; it has far-reaching global consequences.
From the earliest days of electricity we had plenty of coal to drive power stations, then ample natural gas, which was both cheaper and cleaner. As the flow of North Sea gas reduced we began importing liquified petroleum gas from overseas. We erected a vast number of wind turbines in the sea, and built interconnectors to Europe to balance fluctuating supplies.
The last few days have exposed our vulnerability. One of the five active interconnectors has failed, while a prolonged lack of wind has increased demand for gas-fired power stations. Then there is the question of Nord Stream 1 and 2, the Russian-owned gas pipelines between Russia and Germany. Once the second pipeline is complete Russia will be able to switch off the lights in Germany and reduce the availability of power in the UK via the interconnectors.
A Government strategy, known as Project Defend, aims to prevent foreign takeovers of companies deemed essential to our survival as a free people. Yet while there is occasional talk of food security, energy security has been sorely neglected.

The gas price surge is itself the result of long-term policy failure. The Prime Minister, once a sceptic, now embraces decarbonisation with the zeal of a convert. Fracking could have provided a secure domestic supply of natural gas yet it has - inexplicably - been abandoned. In America, fracking tipped the international balance of power away from the autocracies of the Middle East and Russia. Even if net zero remained the ultimate aim, natural gas offered an intermediate solution, a way to get there without severely disrupting everyday life.
Nuclear should play a major role, yet it too faces serious obstacles. The Hinkley C plant is being built by French state company EDF, with Chinese funding, now in doubt due to security concerns about China’s involvement in further projects. In any event it is years from completion.
Small modular reactors have long been a viable option, and the Government has funded a promising design by Rolls Royce, but they are yet to allow construction to begin. Using already-proven technology Rolls Royce can develop a production line and deliver reactors to the sites of now-closed nuclear power stations. These could be operating in less than four years, adding thousands of well paid jobs.
Today’s predicament has even deeper roots in the failure of Conservatives to develop a coherent philosophy of freedom. Saying whatever it takes to win elections has left the party bereft of guiding principles. The great thinker Sir Roger Scruton wanted conservatives to embrace green philosophy, but without the eco-zealots’ extremism. Tackling waste and pollution are natural instincts for many conservatives, mindful as they are of future generations.

Instead, party leaders have fallen into a trap set by extremists. Eco-warriors demand extreme action on a grand scale. and champion a controlled world of ‘perfection’. Yet Scruton favoured personal responsibility and public spiritedness, getting along by mutual adjustment. He did not believe everything must be personal and local; solutions on a national scale might be possible. He discussed, for example, seeding clouds to block heat from the sun as one such potentially viable answer. But where is this kind of ingenuity - or moderation - in the Conservative Party today?

When Greta Thunberg said in 2019 “I want you to panic, I want you to act as if the house was on fire”, she preached the gospel of authoritarians who want people to be forced to change their lives, who believe no one should get off lightly via bridge fuels such as natural gas, or local measures. Change must hurt. This gospel may seem anathema to conservatism, but it has been extraordinarily influential.  

The most sophisticated totalitarian autocracy in human history, the Chinese Communist Party, sees clearly what is at stake. Its leaders will decarbonise, but only after the West has committed economic suicide.
8) Simon Heffer: Environmental hubris has left Britain vulnerable to Putin's gas blackmail
The Daily Telegraph. 18 September 2021
The Government’s utopian approach to environmentalism – including the end of coal power, shunning fracking, and demanding we drive electric vehicles powered by renewable energy – has always come at a cost. But seldom has that cost been so painful as that exacted by Russia’s apparent rigging of the price of gas through its supply company Gazprom.

Preening ourselves about our green credentials, and thus choosing not to exploit huge gas resources under our land and in our own waters, we have made Britain enormously vulnerable. We foolishly talk up our ability to be powered by renewables – a form of electricity generation that has yet to meet the rhetorical claims politicians make for it. Instead, we are at the mercy of Russia’s decisions about the price of gas: and our vulnerability increases as other factors harm our power supplies.

This danger is already apparent. Last Monday a crunch in the gas supply chain, and the failure of turbines to generate power because of a lack of wind, drove electricity prices to 11 times their normal level. Two days later, another source of electricity on which we have become reliant was itself depleted because of a fire in one of the interconnectors bringing in power from France – another country with whom, suddenly, we are on bad terms. Our vulnerability is about more than being able to turn the lights on. Two British fertiliser plants of global significance have closed, disrupting the supply of carbon dioxide, a by-product essential for carbonated drinks and the processing of meat.

We and the EU are struggling because of the pandemic. Europe’s economies, already limping from over-regulation and in many member states an overvalued currency, are the perfect target for a Russia that wishes to place its boot on Europe’s throat. Putin follows the maxim that there is no better time to kick a man than when he is down.

This price shock is a harbinger of our future if we continue to martyr ourselves in the cause of environmentalism, and if we continue to respond with pusillanimity to the Russians. As the West saw after the oil price boom in 1973, a massive rise in energy prices is as good a way as any to kneecap an economy. If the lights fail across Europe and the food chain implodes, Putin will portray it as a measure of his, and Russia’s power, as tyrants do. Energy supply has, indeed, become a weapon for him.

Britain has only itself to blame. It has created unrealistic levels of dependence on foreign energy through its unquestioning repudiation of other power sources, done to curry favour with an aggressive, emotive and sometimes hysterical green lobby. No-one doubts that preventing global warming is desirable. But to achieve this through insufficiently analysed and precipitate action that torpedoes Western economies and confers a massive competitive advantage upon nations such as China and, indeed, Russia that mock our scruples is political and economic suicide. If that means extending the life of coal-powered energy, or building more nuclear power stations, so be it.

Putin believes he can do as he pleases because the West cowers to him. Gazprom holds the whip hand not least because of German dependence on Russian energy. The almost-departed Angela Merkel has ingratiated herself with Putin for years. However, the economic dependence of Putin and his cronies on the West means two can play at that game.

Unless Putin reins in Gazprom, a complete freezing of Russian assets in this country, the refusal of visas and the denial of the Western champagne lifestyle to these gangsters would be salutary, and, given Russia’s appalling behaviour in so many other regards, is in any case long overdue. The EU should do likewise. Our new Foreign Secretary, Liz Truss, can take a lead on this. But, above all, relying on a tyranny for our power supplies is madness and it must stop.
9) Matt Ridley: How Britain’s shale revolution was killed by green lies and Russian propaganda
The Critic, December 2021
The Centre for European Studies found that the Russian government has invested $95 million in NGOs campaigning against shale gas.

[...] Most experts said shale gas was a flash in the pan and would not much affect global supplies. They were wrong. By 2011 America’s declining gas output shot up and oil soon followed suit. The US has now overtaken Russia as the biggest gas producer in the world, and Saudi Arabia as the biggest oil producer.
Cheap gas brought a stream of chemical companies rushing back from Europe and the Persian Gulf to manufacture in America. Gas import terminals were rebuilt as gas export terminals. The Permian basin in Texas alone now produces as much oil as the whole of the US did in 2008, and more than any Opec country except Iran and Saudi Arabia. This — not wind and solar which still provide only 2 per cent of world primary energy — is the big energy story of the past decade.

One country that should have taken sharp notice is Britain. As late as 2004 Britain was a gas exporter, but as North Sea production declined it rapidly became a big net importer, dependent on Norway, Qatar or Russia. As Britain was paying far more for its gas than America, that meant that our huge chemical industry was gradually moving out.

Fortunately, it then emerged that Britain has one of the richest and thickest seams of shale: the Bowland shale across Lancashire and Yorkshire contains many decades of supply. Fracking it would mean drilling small holes down about one mile, then cracking the rocks with millimetre-wide fractures and catching the gas as it flowed out over the next few decades. Experience in America showed this could be done without any risk of contaminating ground water, which is near the surface, or threatening buildings. The seismic tremors that have caused all the trouble are so slight they could not possibly do damage and were generally far smaller than those from mining, construction or transport. The well pads would be hundreds of times smaller than the concrete bases of wind farms producing comparable amounts of energy.

Still, Friends of the Earth, which is effectively a multinational environmental business, spotted a chance to make hay. Despite being told by the Advertising Standards Authority to withdraw misleading claims about shale gas, it kept up a relentless campaign of misinformation, demanding more delay and red tape from all-too-willing civil servants. The industry, with Cuadrilla fated to play the part of Monsanto, agreed to ridiculously unrealistic limits on what kinds of tremors they were allowed after being promised by the government that the limits would be changed later — a promise since broken. Such limits would stop most other industries, even road haulage, in their tracks.

The Russians also lobbied behind the scenes against shale gas, worried about losing their grip on the world’s gas supplies. Unlike most conspiracy theories about Russian meddling in Western politics, this one is out there in plain sight. The head of Nato, Anders Fogh Rasmussen, said the Russians, as part of a sophisticated disinformation operation, “engaged actively with so-called non-governmental organisations — environmental organisations working against shale gas — to maintain Europe’s dependence on imported Russian gas”.

The Centre for European Studies found that the Russian government has invested $95 million in NGOs campaigning against shale gas. Russia Today television ran endless anti-fracking stories, including one that “frackers are the moral equivalent of paedophiles”. The US Director of National Intelligence stated that “RT runs anti-fracking programming … reflective of the Russian Government’s concern about the impact of fracking and US natural gas production on the global energy market and the potential challenges to Gazprom’s profitability.” Pro-Russian politicians such as Lord Truscott (married to a Russian army colonel’s daughter) made speeches in parliament against fracking....
The endless delays imposed by regulators played into the hands of shale gas’s opponents, giving them time to organise more and more protests, which were themselves ways of getting on the news and hence getting more donations. Never mind that few locals in Lancashire wanted to join the protests: plenty of upper-middle class types could be bussed in from the south.

As night follows day, Tory politicians lost courage and slipped into neutrality then opposition, worrying about what posh greens might think, rather than working-class bill-payers and job-seekers. A golden opportunity was squandered for Britain to get hold of home-grown, secure, cheap and relatively clean energy. We don’t need fossil fuels, the politicians thought, we’re going for net zero in 2050! But read the small print, chaps: the only way to have zero-emission transport and heating, so says the Committee on Climate Change, is to use lots of hydrogen. And how do they say most of the hydrogen is to be made? From gas.

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The London-based Global Warming Policy Forum is a world leading think tank on global warming policy issues. The GWPF newsletter is prepared by Director Dr Benny Peiser - for more information, please visit the website at

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