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Gas supply crunch sends EU energy prices soaring

Surging gas prices rattled both the UK and Europe in late September – causing widespread disruption to multiple industries and sending consumer energy bills soaring. Analysts at Citigroup have predicted that household energy bills could increase by 20% this winter for households across the EU’s 27 member states. Policymakers in some nations have already stepped in to cushion the blow.

Spain and Greece, for instance, have announced subsidy schemes, while France is reportedly considering the same. Benchmark European gas prices have gone up by more than 250% since the start of the year – spiking as economies reopened after the COVID-19 pandemic. While some outlets have been quick to point to clean energy policies as primary drivers of the price hike, the picture is somewhat more complicated. 

According to the International Energy Agency (IEA), a strong recovery in demand, combined with supply constraints and weather-linked factors, created a perfect storm for gas price increases. Cold spells in East Asia and North America during the first part of the year were followed by droughts and heatwaves elsewhere during the summer months – all creating sustained upward demand for gas. 

At the same time, the global production of LNG has been slower than normal due to a number of delays and outages, some of which have been carried over from 2020. Compounding the problem is the fact that the wind stopped blowing in the North Sea in the late summer, curtailing output from important offshore wind farms. Gas and coal-fired plants were then called upon to make up for the shortfall, with the bloc’s higher carbon price making the latter assets even more expensive to operate. 

‘Today’s situation is a reminder to governments, especially as we seek to accelerate clean energy transitions, of the importance of secure and affordable energy supplies – particularly for the most vulnerable people in our societies,’ says Dr Fatih Birol, the IEA’s Executive Director. ‘Well-managed clean energy transitions are a solution to the issues that we are seeing in gas and electricity markets today – not the cause of them.’

European lawmakers have echoed a similar commitment to the energy transition. ‘Instead of being paralysed or slowing things down because of the price hike now in the energy sector, we should speed things up in the transition to renewable energy so that affordable renewable energy becomes available for everyone,’ said Frans Timmermans, Vice-President of the European Commission, in a speech in mid-September. 

The European Union executive has vowed to produce a ‘toolbox’ to help member states tackle energy price spikes without breaching energy market rules. The IEA has also called on Russia, Europe’s leading gas exporter, to increase quantities of the fuel flowing into Europe, and help to fill storage facilities as the colder months approach. ‘This is also an opportunity for Russia to underscore its credentials as a reliable supplier to the European market,’ reads a statement from the Agency.

News Item details

Journal title: Energy World|Petroleum Review

Countries: UK - Europe - Russia -

Subjects: Gas markets - Gas prices - Energy policy - LNG markets - Energy prices -

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