Pari Agarwal writes that in the wake of the Russia-Ukraine war, the energy prices have surged. The rising supply-demand gap of energy and power supply in Europe has made the world painfully aware of the increasing need for switching to renewable sources of energy. This Energy crisis in Europe is a culmination of industrial development, population increase change in climate and world politics.
Russia’s invasion of Ukraine in the beginning of 2022 decreased Europe’s supply of oil and natural gas. Russia was the biggest supplier of natural gas to Europe and the war saw a depletion in the supply by huge margins in the first of 2022 with the total flow of supply in the first 6 months being 35% lower than 2021 levels[i]. After many cuts by Russia mainly through the Nord Stream pipeline, Russian pipeline exports to the EU were down roughly 60 percent compared to June 2021[ii].
The year 2022 saw a drop in the demand of natural gas and electricity in Europe in the light of the war and the growing difficulties for the general population. The demand of natural gas in the European Union fell in 2022 by 55 billion cubic metres or 13%, its steepest drop in history[iii]. The consumption of natural gas in the European Union has dropped by 17.7% in the period August 2022-March 2023, compared with the average gas consumption for the same months (August-March) between 2017 and 2022[iv].
The Factors Affecting the Demand in the European Union
The central and western part of Europe experienced a milder winter in 2022 than comparatively to the previous years. This decreased their need of heating devices thus reducing their consumption of electricity resulting in a declined demand of energy in the market.
Whereas the demand was slightly offset the different circumstances in the southern part of Europe, where there was a hotter summer and the hot days were prolonged thus increasing the demand of electricity slightly to cool down the region.
The prolonged gap in supply and demand in the first half of 2022 resulted a spike in energy prices when the European economy was already struggling. The prices rose sharply from around EUR 180 per MWh in May to peak at more than EUR 400 per MWh in August in 2022[v]. This massive increase in energy prices disincentivized them from buying energy thus reducing the demand of energy in European Union.
The changes made by the European Union
The European Union and it’s member countries have taken steps to solve this ongoing energy crisis and have started some initiatives to help the union. They have started various projects which would enable them to switch from oil and natural gas dependency to renewable resources. Many hydrochloric plants, wind fields and solar power plants have been set up in a number of countries. Private companies and corporations are being given incentives in order to get them to invest in clean energy and make Europe self sufficient in energy production and at the same time make energy affordable to the common Europeans.
Conclusion and Analysis
The supply of oil and natural gas from Russia is slowly increasing in 2023, but there is still a huge gap that is needed to be filled. Moreover, the global politics at play between the EU, the USA and Asia has also affected the supply and demand of energy in EU.
From this pattern of supply and demand we can see the volatile nature of the energy market and also the effects it has on other aspects including geo politics, diplomacy and climate.
Author: Pari Agarwal, Research Intern, CS3, USI
Endnotes
[i] Gabriel Di Bella et al., “Natural Gas in Europe: The Potential Impact of Disruptions to Supply”, IMF eLibrary, accessed on 17th June, 2023, Natural Gas in Europe: The Potential Impact of Disruptions to Supply in: IMF Working Papers Volume 2022 Issue 145 (2022)
[ii]Ibid
[iii] Peter Zeniewski, Gergely Molnar and Paul Hugues, “Europe’s energy crisis: What factors drove the record fall in natural gas demand in 2022?”, iea.org, accessed on 17th June, 2023, Europe’s energy crisis: What factors drove the record fall in natural gas demand in 2022? – Analysis – IEA
[iv] “EU gas consumption decreased by 17.7%”, eurostat, last accessed on 17th June, EU gas consumption decreased by 17.7% – Products Eurostat News – Eurostat (europa.eu)
[v] Eren Çam and Carlos Fernández Alvarez, “Europe’s energy crisis: Understanding the drivers of the fall in electricity demand”, iea.org, iea.org, accessed on 17th June, 2023, Europe’s energy crisis: Understanding the drivers of the fall in electricity demand – Analysis – IEA
Hmm good though.