Energy prices go up in a really crazy way. Why?
Is it just the conflict in Ukraine? Why would that make the prices go so up; isn’t it mostly natural gas from there?
Doesn’t Europe also have coal, nuclear and renewables; and import of oil from Middle Eastern countries?
https://en.wikipedia.org/wiki/Nord_Stream
Direct from this article: https://foreignpolicy.com/2022/08/26/europe-energy-crisis-na...
Normally, Europe can refill its gas storage during the summer and coast in the winter, when usage is higher. Now, with colder months looming and Russia’s tightening chokehold on natural gas flows, Europe has been locked in a race against time to fill its tanks, which leaders have stocked by paying eye-watering prices. So far, experts said, European nations have been largely on track with their plans—but that doesn’t mean that they will be out of the woods come winter.
In the winter, Europe typically “uses a lot of what it has in storage while, at the same time, importing lots of gas from other sources,” Munton said. “It needs both. But as we think about this winter, there is a very real threat that there won’t be any Russian gas at all.” In normal times, Russian gas supplies about 40 percent of European imports.
Without Russia’s supply in the winter, Munton added, European nations will be forced to rely on imports of liquefied natural gas (LNG) even more from suppliers such as the United States. The problem is that Asia—a larger LNG market—is also vying for the same supplies, which means prices are always going to be higher than old piped gas from the East.
“That’s really the crisis that Europe and the world confronts,” he added.
As Europe abandons Moscow’s energy supply, many leaders have rushed to secure alternative deals and supplies with other countries. Italy has secured more gas from Algeria while other nations have turned to Azerbaijan, Norway, and Qatar. Germany has also expressed its hopes for a new LNG deal with Canada, which in turn has been considerably less optimistic. Others have invested considerably more into LNG infrastructure, with Germany racing to build five floating LNG terminals and the Netherlands, Finland, and Italy all preparing for more floating units to import gas.
Now next stop of getting supply from rather large player with post covid recovery pushed the price massively to other direction. And do to how electricity markets work not much was needed. Now combine this with very dry summer resulting less hydro and even nuclear shutdowns. And we are really approaching perfect storm.
BP, Shell, etc all making record profits this year.
https://www.reuters.com/business/energy/bp-records-highest-p...
https://www.reuters.com/business/energy/shell-reports-record...
On top of that they also decided to make a big transition in energy, but on the cheap. They made a bet that they could move to intermittent energy sources without breaking the bank, and by ignoring fundamental power engineering. A key part of this strategy was to fill in for what intermittent sources could not supply by increasing energy reliance on energy from Putin (more natural gas and coal). So these countries started turning off nuke and coal plants.
This was a really bad bet, and they were told very publicly that it was a bad bet, because it was highly unlikely that Putin would not take advantage of the situation.
In 2014, Putin took advantage of the situation. Putin shot down an airliner, took over Crimea, and killed a lot of people. These important countries doubled down on their bet on Putin and appeased Putin with a nice settlement - Putin got eastern Ukraine and Crimea. And they agreed to become more dependent on energy from Putin.
This year, figuring he had everyone whupped good and proper, Putin went for broke and decided to take over all of Ukraine, starting by killing the leader of Ukraine. Despite many attempts, this has failed, and these important countries have suddenly realized what others had been telling them for years.
The cost of disentangling from Putin is now very high, and you're seeing that in energy costs.
The European electricity market is regulated in such a way that all energy is priced at the production price of the most expensive plant running. If I understood correctly, this is done so that no plant will operate at a loss (and risk closing, which could lead to energy shortages).
In particular, this means prices of energy follow those of gaz, even though there are cheaper alternatives
Unfortunately for them, the price of gas on the spot-market has risen many-fold because of sanctions on Russia which reduced the amount of available gas, and caused 'Ye Olde Supply and Demand' price increases.
Hungary, on the other hand, continued buying gas from Russia on a long-term contract and they continue laughing all the way to the bank while their other European neighbors are screaming at the high prices of spot-market gas.
Of course, those countries screaming for gas could have benefited by opening up the NordStream 2 pipeline at any time previously. But they'd better open it up soon, because Russia has said that if NordStream 2 is not opened up soon, the gas currently allocated for it will be allocated elsewhere. Meaning there wouldn't be any gas in the pipeline any more, even if the Germans suddenly decided to finally open it up.
Dumb is as dumb deserves to be.
One is that Europe -- and in particular, some of the richest parts of Europe -- gets a material fraction of its energy from Russia. Sanctions from Europe eliminated some of this supply, and retaliation from Russia eliminated more of it.
The timing coincides with a period when Europe was already going to have significant energy shortages, as Germany has been aggressively decommissioning its nuclear generation capacity and Europe generally has been trying to "decarbonize" its energy markets in a manner that removes carbon-intensive capacity much faster than it builds out new renewable capacity (thereby reducing the total amount of energy produced).
On top of that, European populations are growing (a little), which produces (a little) more energy demand.
Europe does produce coal, but it's been producing less and less over time, due to the decarbonization efforts I mentioned above, and also because some of the mines are quite old and getting somewhat mined out. (Poland, for example, still produces lots of coal, but the cost to produce it keeps going up as they have to dig further and further to get to more -- new mines are not opening)
In addition, (very realistic) fears of a shortage coming in the winter have led to people trying to purchase now as much as possible the energy that they will need in the winter, which is why prices are skyrocketing now rather than waiting until the shortage actually happens. (You can see this most acutely in Poland, where people are literally waiting in their personal vehicles in a three-day-long line outside the local coal mine to purchase their winter allocation of heating coal. (The government in Poland has already begun to ration coal, allowing each household to only purchase their fixed allocation from the mines).
Some energy demand is highly "elastic" -- that is, if the price goes up, the demand falls. If you use energy to make stuff, if the cost of the energy goes above the value of the stuff, you stop making the stuff. But a lot of the demand is pretty inelastic -- a family in a place with a cold winter will probably buy enough energy to heat their home at least to about 55F at almost any price that isn't totally ruinous, and will continue to buy energy to heat to at least about 50F even at ruinous prices.
That means that when there's a shortage, prices will move up gradually to a point, and then suddenly they'll spike very high very fast. That's because at first, as prices go up, demand falls -- people and companies stop using as much energy and start both being more efficient and also foregoing energy-intensive activities -- but after a certain point, higher prices don't drive out that much more demand, because all of the uses of energy that people are willing to curtail have already been curtailed. At this point, prices spike very high very fast, as each new increase in price only reduces demand very slightly, and so the shortage remains.
If prices stay this high for an extended period, people can take drastic actions to reduce their use (for example, multiple families could move into houses, so that there were fewer homes to heat, or they could, as one German minister suggested, only heat a single room per house and sleep all in one room at night in the winter -- but they won't do these things unless they have no choice, and in some cases they can't do them quickly anyway.
US military have 15 military bases in Texas.[2]
Then US have 41 military bases in Germany[1].
It is a proxy war, kind of Vietname but in Europe.
[1] - https://en.wikipedia.org/wiki/List_of_United_States_Army_ins...
> This is maybe a dumb question. But I need to ask it.
Judging by the answers you're getting, the question looks anything but dumb.
> Energy prices go up in a really crazy way. Why?
Because Europe decided to commit suicide. Literally.
> Is it just the conflict in Ukraine? Why would that make the prices go so up; isn’t it mostly natural gas from there?
Look at the data. Prices were going up since 2020. Russian cheap gas was the only deterrent, but now we need to "free Ukraine" ... well that freedom will cost every EU government the ability to rule, because if there's one thing a population won't allow is turning poor rapidly. I'm very concerned about Italy tbh.
> Doesn’t Europe also have coal, nuclear and renewables;
No, not enough for the next 5-10 years. There are also political problems: global warming and fear of nuclear disaster.
> and import of oil from Middle Eastern countries?
The OPEC countries did not bring the oil prices down. That tells all you need to know about how they're seeing the world: unipolar or multi-polar? Not picking a side, is a new thing. No one would go against the NATO in 2005, but now countries are not willing to pick a side - this helps Russia in this conflict. Russia is not as isolated as the mainstream make them to be, unfortunately.
It has been known for centuries that large increases in the stock of money result in broad price increases, and there is a mountain of historical evidence to support this notion. It is largely ignored by modern "economists" (particularly the modern monetary theorists, who hold the idea that we can just keep creating money at no cost).
Energy price increases are not just unique to Europe, but they are occurring globally for the same reasons. This trend began well before the Russian invasion, but clearly after the 2020 response to COVID.
From most-impactful to least-impactful on the price of energy (and everything else), you have 1: Reckless monetary policy. 2: Reckless green agenda. 3. RUS/UKR conflict.
#3 certainly provides a convenient excuse for those in power though, who are directly responsible for #1 and #2.