The crisis over Europe’s energy supply is threatening the region’s economy and raising serious questions about its climate change ambitions. Due to the sanctions imposed by Western nations on Russia, the country has significantly decreased natural gas supplies to Europe. Despite Russia’s denial of using gas as a weapon, Europeans are still concerned about the country’s energy supply. They blame Gazprom, the state-owned energy company, for not being reliable. According to Nord Stream, the company that operates a pipeline that carries natural gas from Russia to Germany, the volumes of gas going through the pipeline have decreased. Economy Minister Robert Habeck of Germany criticized Gazprom’s technical explanation. Before the latest reduction, supplies had been temporarily halted. During the maintenance works carried out between July 11 and 21, the gas supply had been maintained.
The European Commission, the executive arm of the EU, noted that several European countries had been affected by the reduction in gas supplies. Officials from the EU claim that Russia is using its gas supplies to blackmail the region. Moscow has denied these claims. European leaders are worried that the country’s energy supply might be disrupted completely. This is especially true since many industries rely on natural gas for their manufacturing processes. Due to the lack of reliable energy supplies, many countries have started looking for other sources of energy. However, this process can be very time-consuming. The commission has urged the member states of the European Union to store at least 80% of their natural gas by November. In June, the storage levels were only around 56%.
Natural gas prices soar
The price of natural gas has significantly increased following Russia’s invasion of Ukraine. It was also before Russia started to reduce its gas supplies. Every time Russia reduces its gas supplies to Europe, natural gas prices go up. This is because the commodity is very important to various sectors of the economy, and the lack of alternative sources of energy is also a concern. According to an economist at Berenberg, natural gas prices in Europe have significantly increased compared to the 2015-2019 average.
European gas prices
The European Union uses around 4.3 billion megawatt-hours of natural gas in a normal year. If natural gas prices were to increase by around 100 per megawatt-hour for one year, the costs of doing business would increase by about 430 billion. This would be equivalent to around 3% of the EU’s 2021 gross domestic product. According to a report released by a consultancy firm, the price of natural gas in Europe has increased by 15% to almost 200 per megawatt-hour as utilities started looking for other energy sources. This could cause a winter recession and raise concerns about consumers’ energy bills.
Growth expectations shattered
The gas crisis is shaking Europe’s economic prospects with supplies reduced and prices higher. A report released by the European Union showed that the region’s economy grew at a slightly faster rate of 0.7% in the second quarter. However, many economists are expecting a recession in the next few years. The European Commission earlier this month maintained its growth forecast for the region at 2.7% for this year and 1.6% for next year. However, it warned that a full shutdown of Russia’s gas supplies could cause the economy to contract in 2022. According to Fiedler, higher gas prices are forcing companies to raise their costs and squeeze consumers’ budgets, leading to a euro zone recession this autumn.