Europe shows nerves of steel in new 'cold war'

Natural gas usage in Western Europe fell 22 per cent in October from the same month a year earlier, according to data from Energy Scan. Residential and business-related gas usage fell by an even steeper 33 per cent

By Jon Van Housen and Mariella Radaelli

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Published: Wed 16 Nov 2022, 9:23 PM

Europe might have the reputation for loving and creating luxury, but it is proving it can tough it out if need be. Despite dropping temperatures, residents of the region have joined government efforts to keep the heating off in the face of potentially fearsome energy prices.

As a result, wholesale prices plummeted as a glut from eager suppliers of liquefied natural gas (LNG) hit the market. While a mild autumn helped and much remains to be seen, Europe’s response to the energy crisis has surprised critics. Many are wondering if the crisis has established a new paradigm that will supercharge conservation efforts and the long-term battle against climate change – or simply drive efforts to find more carbon-based fuels.

Faced with a diminished supply of natural gas from Russia related to the Ukraine conflict, governments across Europe decided to keep the heat off in public buildings until December 1 and asked consumers to do the same. When the heating is switched on, they want to limit the thermostat setting to 19 C.

Huge shipments of LNG – so great has been the response that full massive tankers are lined up at sea queuing to offload – and brimming storage facilities are now easing concerns over gas rationing or truly disastrous prices. Anecdotal reports say gas prices to residential users appear to have about doubled over the low traditional rate, allaying fears publicized early in the fall over a potential price rise of five times or greater.

Julien Hoarau, head of analysis at Energy Scan, a firm that monitors usage for the energy industry, told the press that there are “emerging signs of behavioural change regarding heating usage” resulting in “strong bearish pressure on spot gas prices across Europe and strengthened ability for the continent to balance its gas system this winter”.

Natural gas usage in Western Europe fell 22 per cent in October from the same month a year earlier, according to data from Energy Scan. Residential and business-related gas usage fell by an even steeper 33 per cent.

A cold snap that hit Europe this week could alter the short-term figures and send costs higher in the extremely price-sensitive and volatile market, but long-term changes are already affecting the outlook.

In just 200 days Germany will have completed construction of its first import terminal for LNG, at Wilhelmshaven on the North Sea, easing fears that Europe’s largest economy could face gas rationing this winter. Earlier this year, it chartered five floating storage units, with the first LNG tankers due to dock early next year.

“Germany can be fast and advance infrastructure projects with great determination when the federal and regional governments, together with the project participants, all pull together,” said German Economy Minister Robert Habeck.

Italy also moved in record time to approve a controversial new LNG terminal in the port of Piombino in Tuscany. With little domestic gas production and a ban on nuclear power, Italy is heavily reliant on imports. Before the Ukraine war, Russia supplied nearly 40 percent of its total energy.

Italian energy giant Eni is roaming far afield in search of new supplies, particularly in Africa. It hailed what it called a major achievement as the first shipment of LNG left the Mozambique Coral Sul gas field it has developed. One of the world’s poorest nations, Mozambique ended a decade-long wait to sell gas extracted from the large offshore field as President Filipe Nyusi announced the first shipment in a statement this week.

The developments come at a poignant time – world leaders have gathered for a G20 summit in Indonesia and the COP27 climate summit now underway in Egypt – as the planet clearly feels the impact of severe weather and lower food production due to global warming.

Just when industrialized nations should be accelerating funding for the transition to renewable energy, vast funds are being invested in carbon-based infrastructure. While sharply lower energy use in Europe should in theory reduce greenhouse gas emissions, environmentalists worry that once new facilities for LNG are in place, governments and energy companies will say those need to remain in use to justify the effort and expense.

With its famed island of Bali hosting the G20, Indonesia basked in the spotlight and some attention to its energy mix as EU and other leaders announced that the so-called Just Energy Transition Partnership would mobilize an initial $20 billion in public and private financing over a three-to-five-year period to reduce greenhouse gases. Yet the country is still planning to build new coal-fired power plants and a new LNG gas terminal in Bali itself.

Europe, the biggest driver of the present demand for more fossil fuels, will need to do more than lavish money on new facilities and hoarding energy supplies purchased at high rates.

European peoples have shown their grit and determination by conserving energy and now governments need to show theirs by redoubling efforts in sustainable solutions. European industry also faces an enormous challenge to remain competitive with energy-rich America and labor-abundant Asia.

The new “cold war” could indeed be the quiet, steadfast determination to maintain Europe’s quality of life and industrial leadership along with its humane, enlightened policies.

- Jon Van Housen and Mariella Radaelli are international veteran journalists based in Italy

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