Europe and the winter of the end of the world

We have been hearing for months that this is going to be winter of the end of the world, that as soon as the cold arrives we are going to find out what is good. In winter, due to the few hours of daylight and the cold, energy consumption skyrockets. The lights stay on much longer and we have to turn on the heating. If the heating is gas (something very common throughout Europe) the bills will be very high. If it is electric, we will also pay much more because the gas is also used to generate electricity in combined cycle plants. In Spain, Portugal or Italy, where the summers are generally hot, it doesn’t catch us again. This summer we have dealt with the high temperatures by limiting the use of air conditioning as much as possible. These devices consume a lot of electricity and in summer they account for the bulk of consumption for those who use them. In other countries where summer temperatures are milder and the use of air conditioning is residual, they have not suffered in the same way. The real test comes to them now.

In Brussels they knew it since before the start of the summer. By then it was already known that Ukraine was going to last a long time. The war had stalled donbas And even if it ended unexpectedly, the gas problems were going to linger for much longer. That led the Commission in June to ask the member countries to stockpile gas so that the arrival of autumn would not catch them with reserves at a minimum. European countries often top up their gas reserve tanks during the summer when consumption is lowest with the idea of ​​having something stored for the winter. Europe has been running against the clock all summer to fill your deposits. The European Commission asked them to have them at 80% before the first of November and they have already reached that figure. This Monday the EU gas deposits were at 86% on average.

This express filling has been done at the cost of a very high expense. The cost of replenishing inventories will exceed 50,000 million euros, ten times more than the average in recent years. Apart from paying much more, European countries have had to touch other springs to be able to fill the reserves on time. They have tried to curb the demand, they have increased considerably LNG imports and, in some cases, they have had to reopen coal plants that were already closed so as not to have to burn gas for generation. The intention now is to reach an average of 90% of the reserves by the beginning of November, something that some countries like Poland, France or Germany have already reached.

Under normal circumstances, Russia contributes an average of 40% of what is consumed in Europe, but that also goes by neighborhood or, rather, by country

Once they are full, winter will descend on Europe. The question that many ask themselves is whether the reserves will suffice, if in the event that the gas supply is interrupted, we could supply ourselves only with what we have accumulated. The answer is short: no. The reserves ensure supply for about two months on average for the entire EU. But that tells us nothing because the reserve capacity is very different in each country. In Germany the reserves give them for 88 days of consumption, in Italy for 123, in France for 89, in Spain for 34, in Belgium for 16. Outside the EU, in the United Kingdom, the reserves only guarantee 7 days of consumption.

That implies that you have to continue importing. If Russia completely cuts off the supply, the gas will have to come through the gas pipelines in the Sahara, which go from Algeria to Italy and Spain, and from methane tankers. The Saharan gas pipelines have a very limited capacity, so most of the imports will be in the form of liquefied gas on board methane tankers. Under normal circumstances, Russia contributes an average of 40% of what is consumed in Europe, but that also goes by neighborhood or, rather, by country. The Hungarians or the Slovaks imported around 90% of the gas from Russia, the Germans 65%, the Poles 55%, the Dutch 25%, the French 17% and the Spanish 10%. There western countries will have it easier than those from the east since they are used to bringing the gas by boat.

In Spain, many air conditioners have spent the summer as mere decorative objects in houses. Washing machines and dishwashers were filled and avoiding spending more than necessary

The problem that arises here is that by significantly increasing imports of LNG from suppliers such as the United States or Qatar, gas will become even more expensive because Europe will compete with Japan or South Korea, whose only source of gas supply is the one that arrives by sea There is obviously a limit to what can be done in the short term to import additional supplies because, on the one hand, there is a limited amount of LNG in the world and, on the other hand, the methane tanker fleet is also limited. There are about 700 methane tankers around the world which are in high demand. More can be built, and they are working on it, but the shipyards are not enough and a methane tanker is not built in a week, it takes between a year and a year and a half.

This being the case, the picture looks so black that we Europeans will have no choice but to save. This saving can be voluntary or forced. Electricity and gas bills have already done their part to reduce consumption. This summer the air conditioning was turned on when strictly necessary or not at all. In Spain, many air conditioners have spent the summer as mere decorative objects in houses. Washing machines and dishwashers were filled and avoiding spending more than necessary. If that is not enough, the governments will impose saving measures like the ones approved this summer.

But the problem is not so much residential as industrial. Home consumption is much more flexible. It is enough to resign yourself to being hot in summer or bundled up in winter, turning off lights around the house and only running the dishwasher when it is full to the brim. In the industry it is different. There the consumption of gas and electricity is much more rigid. A factory is put into operation and its energy consumption is stable. The real drama is there.

The energy crisis has put European industry in check. Many have had to reduce production, others have closed because they cannot afford to pay for expensive electricity or gas, and some are moving production elsewhere, especially to the US. Luxembourg-based ArcelorMittal announced this month that would cut production at two German plants and in the Spanish plants it has announced an ERTE that will affect more than 8,000 workers. German chemical giant BASF, one of Europe’s biggest consumers of natural gas, has cut production at its factories in Belgium and Germany. OCI, another of Europe’s leading chemical companies based in the Netherlands, has also cut production and has already started importing ammonia from Texas. Volkswagen going to double the size of its plant in Tennessee. Tesla This summer the construction of its “gigafactory” in Berlin to produce batteries stopped and, although it later resumed work, they have already said that they will prioritize production in the US since energy is cheaper there.

We are in an energy war and, like all wars, it will bring exceptional measures, some of which we already have among us, such as the savings plans approved this summer

As we see the industrial sector is facing a sure recession. From the energy-intensive aluminum industry to manufacturers of fertilizers, cars and everything else, companies across Europe have been forced to drastically cut production or even go bankrupt in the face of skyrocketing gas prices. and electricity. We are not in normal market conditions, they are extreme conditions. We are in an energy war and, like all wars, it will bring exceptional measures, some of which we already have among us, such as the savings plans approved this summer. The most pessimistic believe that this has only been the beginning, that this winter will be even worse and everything will blow up between power cuts and skyrocketing inflation.

That is a scenario, surely the worst, but not the only one. The future we do not know. If a year ago they told us that we were going to meet in these, we would not have believed it. In September of last year the problem was how overheated the demand was and the general optimism that permeated everything. But in a crisis you always have to take into account the worst scenarios and be more or less prepared for them. What we now know is that energy is very expensive and could become more expensive. This week it was enough for the Kremlin to announce the mobilization partial for oil and gas to rise. If that’s followed by the complete shutdown of Nordstream 1 things will get even worse.

As anger grows, European solidarity is weakening. That is bad for Brussels and for the support it provides Ukraine against the Russian invaders.

Discontent has settled in European society and may worsen. There have been demonstrations against high energy prices and inflation in some countries. In Prague some 70,000 people took to the streets at the beginning of September in a demonstration with the slogan “Czech Republic First” to demand greater government involvement. In Italy, small businessmen demonstrated publicly breaking electricity bills. This could go further. As anger grows, European solidarity is weakening. That is bad for Brussels and for the support it gives to Ukraine against the Russian invaders. Those Italian businessmen demonstrating this month were not blaming Putin of the situation, but Ursula von der Leyen. It is easy to conclude that if prices remain too high this winter, political tension will increase. When there is tension, politicians try to save themselves and stay in office.

If the winter is mild, the demand for gas will be lower. In that case the Europeans will be able to weather the storm of a winter that is going to be complicated yes or yes. In the meantime the disconnection with Russia will have been consummated. The Russian economy appears to have been spared the worst of the energy war so far as it is protected by high oil and gas prices. In the long run, when Europe finally finds alternative suppliers and Russia loses its main export market, the balance will change. There is not enough physical infrastructure for Russia to direct all its exports to China. You can build it, but until the pipelines are finished you will have to burn your own natural gas instead of selling it.

Russia has eliminated itself from European markets. For a country whose energy exports (gas, oil and coal) represent 48% of total exports, cutting off its main export market is a leap into the dark that will end up taking its toll, but that will happen in the long term. In the short, what we have is a complicated autumn-winter, what we do not know is how complicated it will be because, in addition to not knowing what is going to happen, this situation is unprecedented from which to draw lessons.