Europe's energy crisis - World must prepare

Suddenly, the world is waking up to the importance of natural gas as a source of energy

 Europe's energy crisis - World must prepare

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Read more on - Polity | Economy | Schemes | S&T | Environment

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• The natural gas question: Access to energy and its sources has deeply impacted foreign affairs all through the past one hundred years. Nations are more reliant than ever on natural gas to heat homes and power industries amid efforts to quit coal and increase the use of cleaner energy sources. But there isn’t enough gas to fuel the post-pandemic recovery and refill depleted stocks before the cold months. So countries are trying to outbid one another for supplies as exporters such as Russia move to keep more natural gas home.
• Crunch time: This will get a lot worse when temperatures drop. The crisis in Europe presages trouble for the rest of the planet as the continent’s energy shortage has governments warning of blackouts and factories being forced to shut. Inventories at European storage facilities are at historically low levels. Pipeline flows from Russia and Norway have been limited. Calmer weather has reduced output from wind turbines while Europe’s aging nuclear plants are being phased out or are more prone to outages, making gas even more necessary. European gas prices surged by almost 500 per cent in the past year and are trading near record.
• Direct hit: The spike forced many fertilizer producers in Europe to reduce output, threatening to increase costs for farmers, and raising global food inflation. Even a normally cold winter in the Northern Hemisphere is expected to drive up natural gas prices further across much of the world. In China, industrial users including makers of ceramics, glass, and cement may respond by raising prices; households in Brazil will face expensive power bills. Economies that can’t afford the fuel—such as Pakistan or Bangladesh, could simply grind to a halt.
• Inflationary impact: The prospect of accelerating energy costs, in conjunction with squeezed supply chains and food prices at decade highs, could make more central bankers question whether the jump in inflation is as transitory as they’d hoped. Traders will be carefully dissecting every weather forecast published from now to December 2021.
• Asian situation: In Asia, importers of liquefied natural gas are paying record prices for this time of year to secure supplies, with some starting to snap up dirtier fuels such as coal and heating oil in case they don’t obtain enough. China, the world’s biggest buyer of natural gas, hasn’t filled stockpiles fast enough, even though imports are almost double what they were in 2020.

1. Several Chinese provinces are already rationing electricity to industries to meet President Xi Jinping’s targets for energy efficiency and pollution reduction.
2. A power crisis could worsen shutdowns if authorities divert gas to light and heat households. If Chinese factories have to contend with widespread power shortages, global prices for steel and aluminum will jump.

• Brazilian case: In Brazil, the lowest flows to the Parana River Basin in almost a century have slashed hydropower output and forced utilities to rely more heavily on gas. The country boosted gas imports to an all-time high in July, and power bills are rising. With inflation already ballooning, that could hurt President Jair Bolsonaro’s chances in 2022's election.
• Summary: The stage is set for an all-out scramble among Asia, Europe, the Middle East, and South America for shipments of LNG from exporters such as the Qatar, Trinidad and Tobago, and the US. Even though gas prices have been notably lower in the US than in Europe and Asia, they are trading near the highest level since 2014. Citizens of the world are now getting a painful lesson in how important is natural gas, and not just oil, to the world economy.
• EXAM QUESTIONS: (1) Explain how the energy markets of the world are behaving in 2021. (2) How important is natural gas (LNG) to the Indian economy? Explain. (3) Comment on the strategic significance of the gas pipeline from Russia to Germany.

Read more on - Polity | Economy | Schemes | S&T | Environment

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