The world is gripped by an energy crunch — a fierce squeeze on some of the key markets for natural gas, oil and other fuels that keep the global economy running and the lights and heat on in homes. Heading into winter, that has meant higher utility bills, more expensive products and growing concern about how energy-consuming Europe and China will recover from the COVID-19 pandemic.
The biggest squeeze is on natural gas in Europe, which imports 90% of its supply — largely from Russia — and where prices have risen to five times what they were at the start of the year, to 95 euros from about 19 euros per megawatt hour.
Analysts blame a confluence of events for the gas crunch: Demand rose sharply as the economy rebounded from the pandemic, while a cold winter depleted reserves. Europe’s chief supplier, Russia’s Gazprom, held back extra summer supplies beyond its long-term contracts to fill reserves at home for winter. China’s electricity demand has come roaring back, vacuuming up limited supplies of liquid natural gas, which moves by ship, not pipeline. There also are limited facilities to export natural gas from the United States.
Costlier natural gas has even pushed up oil prices because some power generators in Asia can switch from using gas to oil-based products. U.S. crude is over $83 per barrel, the highest in seven years, while international benchmark Brent is around $85, with oil cartel OPEC and allied countries cautious about restoring production cuts made during the pandemic.
The crunch is likely short term but it’s difficult to say how long higher fossil fuel prices will last, said Claudia Kemfert, an energy economics expert at the German Institute for Economic Research in Berlin.
But “the long-term answer that has to be taken out of this is to invest in renewables and energy saving,” she said.
The European Union’s executive commission urged member nations last week to speed up approvals for renewable energy projects like wind and solar, saying the “clean energy transition is the best insurance against price shocks in the future and needs to be accelerated.”
In the meantime, some gas-dependent European industries are throttling back production. German chemical companies BASF and SKW Piesteritz have cut output of ammonia, a key ingredient in fertilizer.
People worldwide also are facing soaring utility bills this winter, including in the U.S., where officials have warned home heating prices could jump as much as 54%. Governments in Spain, France, Italy and Greece have announced measures to help low-income households, while the European Union has urged similar aid.
Much depends on the weather. Europe’s gas reserves, usually replenished in summer, are at unusually low levels.
“A cold winter in both Europe and Asia would risk European storage levels dropping to zero,” says Massimo Di Odoardo at research firm Wood Mackenzie.
That would leave Europe dependent on additional natural gas from a just-completed Russian pipeline or on Russian willingness to send more through pipelines across Ukraine. But the new Nord Stream 2 pipeline has not passed regulatory approval in Europe and may not be contributing gas until next year.
Russian suppliers’ decision to sell less gas on spot markets reflects “an intention to put pressure on the early certification of Nord Stream 2,” said Kemfert, the energy economics expert.
In China, outages have followed high prices for coal and gas as electric companies power down amid limits in passing costs to customers or government orders to stay under emission thresholds.
The biggest city in the northeast, Shenyang, shut down streetlights and elevators and cut power to restaurants and shops a few hours a day.
China’s gas imports have jumped, but surging demand in Japan, South Korea and Taiwan also helped push up global prices, said Jenny Yang, research manager for the gas, power and energy futures team for China at IHS Markit.