Energy prices have skyrocketed in Europe, after predictions of a difficult winter and Russia’s drastic natural gas supplies cut. With tensions between Moscow and the West continuing to escalate, gas futures are climbing unrelenting. This past week, Russian gas giant Gazprom, said it was temporarily shutting a key pipeline to Germany at the end of August, further stoking market fears.
With over 20% of European electricity generated by gas-fired power plants, any drop in supply leads directly to higher prices. The latest surge comes as European natural gas futures climbed for a sixth straight week. According to Reuters, the benchmark European gas price has soared 550% in the past 12 months.
Energy Prices in Europe Compared to the U.S.
European gas prices on Friday reached an average of 341 euros per megawatt hour (MWh). Futures are even more alarming, as year-ahead contracts for Germany and France are now hovering around 1,130 Euros per megawatt hour, which is a tenfold increase in both countries from a year ago. By comparison, the average cost of electricity in the U.S. is about 14.92 cents per kilowatt-hour (kWh) or $150 per MWH.
The European Union (EU) countries have allocated 236 billion Euros for households and firms in assistance for rising energy prices. Recently, countries across the EU have announced energy savings campaigns to encourage power consumption reduction during the upcoming winter.
With souring prices, EU citizens are voluntarily taking action to cut consumption as gas, electricity, and fuel prices sky-rocket due to war. Spending more of their income on energy than ever before, Europeans are limiting utility use and showering at work, to keep energy bills as low as possible.
Britain’s Response to Energy Crisis in Europe
In October, Britain will raise its energy price cap, meaning average annual bills for gas and electricity will jump. Additional hikes are set for January and April. British consumers’ energy cost will be up 80% from a year ago in October, with an average annual household cost capped at 3,549 pounds ($4,188).
With a cold winter expected, the escalation will cause some Britons to choose between eating, medical and energy. Kidney care centers are already warning patients that soaring energy prices could cause major problems.
The government is promising to help those facing the predicament. They have announced that six million disabled people in Britain would receive a onetime 150 pound “Cost of Living” payment in September to help with rising energy bills. It is estimated that 8.9 million UK households could be in “fuel poverty” after October when Britain’s cap increases, doubling the number from October 2021.
France Struggling too
France has other energy woes beyond the war. Only 24 of the 56 nuclear reactors were online on this past week due to shutdown of several nuclear reactors for corrosion and associated repairs, further escalating energy cost. Normally an exporter of electricity, France is now an importer. Currently, French households are shielded with an energy price cap through the end of the year.
Germany Also Under Pressure
Germany’s government is under tremendous pressure to find ways to replace the loss of Russian gas and oil. In an official announcement last week, the German government has capped heating in public buildings to 66 degrees Fahrenheit this winter, shut off hot water and ban heating private swimming pools. Germany announced yesterday it would shut down public building exterior lighting, with the city of Augsburg turning off traffic lights.
Around the Mediterranean
In 2021, renewables generated 46.7% of Spain’s electricity needs using wind power, hydroelectric, and solar. Even with their renewable energy programs, Spain announced no Air Conditioning (AC) settings below 81 degrees Fahrenheit, and shop windows are not allowed to be lit after 10 PM.
Italy is one of the Continent’s most dependent countries on Russian energy. They have established limited (AC) settings around the country in a program called “Operation Thermostat”.
Energy Outlook in Europe
Repercussions from the war in Ukraine have altered the natural gas market, forcing not only energy prices, but other commodities to rise. HSBC bank recently warned that “recession is probably unavoidable” in the eurozone, with the economy shrinking over the next year.
Natural gas now costs almost 10 times more than last year and electricity prices will continue to climb. Russia is observing the pain they are causing in Western Europe. Analyst are saying President Putin hopes to wiggle out of Western sanctions imposed by the Ukrainian war, by straining and weakening European resolve through the artificial energy crisis.