Gas and electricity prices explode: energy crisis threatens Europe’s economy

Gas and electricity prices explode
Energy crisis threatens Europe’s economy

Europe’s gas storage facilities are largely empty, and supplies are only flowing slowly. A simultaneous lull in the wind and increasing demand are causing energy prices to skyrocket across Europe. The first factories have to stop production.

Exploding energy prices are forcing the first companies to close energy-intensive factories in Europe. Fertilizer manufacturer CF Industries stopped production at two UK plants last week. The Norwegian chemical company Yara International, which produces at more than a dozen locations across Europe, announced that it would cut ammonium production by 40 percent from next week. German companies such as the chemical giant BASF and the copper manufacturer Aurubis also complain about the effects of extremely high prices for electricity and energy sources such as gas, oil and coal.

The US investment bank Goldman Sachs warns in a current report of possible large-scale power outages in Europe in the coming winter. Above all, the bank’s energy experts are worried about almost empty gas storage tanks, with only sparse supplies arriving at the same time. If the coming winter turns out to be as cold as the previous one, Europe is threatened with an acute energy crisis, it is said. Governments could be forced to order the closure of certain industries. “It could be very ugly if we don’t act quickly to fill every inch of the stores,” “Bloomberg” quotes the head of the Italian utility Snam. Italy has already massively increased state-regulated gas prices and announced further price increases before winter.

Even if major blackouts are avoided, Europe’s economy is threatened with a spiral of cost increases that will impair the recovery after the corona crisis and further fuel consumer prices. In addition to gas and other energy sources, companies also lack other raw materials and intermediate products such as micro chips. Inflation in Germany has already climbed to its highest level in almost 30 years.

The price for gas at the most important European trading center for this energy source in Amsterdam has more than tripled since the beginning of the year. Normally, the gas storage facilities in Germany and other European countries should have long been replenished after the unusually long and cold winter. However, that did not happen. Europe’s most important gas supplier, Russia, delivered significantly less than in previous years. The production volume of Europe’s gas fields, which are mainly located in the North Sea, is also restricted, partly due to corona-related failures. At the same time, the increasing global economy, especially in Asia, ensures that the demand for natural gas delivered by sea increased massively and that comparatively few tankers found their way to Europe.

Additional price effect CO2 certificates

Other energy sources such as hard coal are currently being traded on the world market at historically high prices. At the same time, there has recently been an unusually low wind in parts of Europe. In Great Britain in particular, the production of wind power collapsed. In Germany, this meant that lignite-based power generation, which was about to be abolished, returned to first place in electricity generation. Since lignite-fired power plants emit a particularly large amount of CO2, the price for CO2 emission certificates also rose, which in turn makes all types of fossil energy generation more expensive.

In Germany, the wholesale price for electricity supplies has already climbed to its highest level in almost ten years. How this development affects private customers, however, also depends on political decisions. Almost all parties have announced that in the event of government participation after the federal elections, the EEG allowance, which currently accounts for more than 20 percent of the electricity price, will be abolished in its current form.

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