A winter energy crunch in Europe looks a distinct possibility

• Russia’s invasion of Ukraine imposed a sudden energy shock on Europe 18 months ago.
• Faced with the prospect of much less Russian gas, there were fears that Europe’s energy infrastructure would not cope with winter 2022-23, causing economies to crumble.
• European gas prices 2020-23 (US$/MMBtu) According to politicians like the German energy minister, Robert Habeck, the worst of the energy crisis is over.

New vulnerabilities

• To cope with this shift, the EU has become much more reliant on shipments of liquefied natural gas (LNG) than before.
• (Indeed, 13% of LNG imports into the EU actually still come from Russia, whose shipments have also significantly increased since the invasion).
• This shows that supplies remain tight and that there are many potential disruptions in our highly interconnected world market.
• Should there be a physical shortage of gas in continental Europe this winter, this might undermine calls for solidarity.

What comes next

• Even as things stand, European gas prices remain around 50% above their pre-invasion long-run average, which is hurting both households and businesses.
• This is particularly important for Germany, the EU’s industrial powerhouse, with its energy-intensive automotive and chemical industries.
• There are growing concerns that continued high energy prices could promote de-industralisaton as energy-intensive industries move elsewhere.
• This would significantly reduce Europe’s need to import gas for good, but will only happen if the bloc coordinates effectively.