The energy war continues in Europe

on Dec 5, 2022
Updated: Dec 9, 2022
  • EU demand for gas fell 25% in November, a blow to Putin
  • Weather has since turned colder, however, with worst yet to come
  • Green energy push is only long-term answer for EU to escape reliance on outsiders for energy

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Anyone following my work will know that I am quite bearish about the state of the economy in Europe. A big part of this is Putin’s stranglehold on the energy market. The weather may have helped somewhat, however.  

EU gas demand down 24%

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We got some data this morning from commodity analytics company ICIS that gas demand in the EU was 24% below the five-year average last month. This comes on the back of a similar fall the previous month.

This is good news. It shows that European citizens are paring back their gas demand, which is Putin’s biggest weapon in the war on Ukraine. A big thank you goes to the weather gods, however, as the past few months have been unseasonably warm on the continent.

But this unseasonably balmy climate has not now shifted, meaning that next month’s data will be more interesting. Winter has truly arrived and the pinch will be felt by Europe. Nonetheless, the past two months have been a blow to Putin’s hopes that the EU will place their need for energy above their support of Ukraine.  

This test will be accentuated by the latest sanctions, as the EU has now banned Russian crude imports, active as of this morning. Two sources at major Russian oil producers, speaking to Reuters and requesting anonymity, said that Russian oil output could fall by up to 1 million barrels per day in 2023 due to the ban. Europe is squeezing Putin’s premier source of financing.

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The path to green energy?

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The problem with Europe is that it is very poorly endowed in the natural resource department, at least when it comes to energy. This has led to a heavy reliance on outsiders for energy. Norway continues to plod along just fine, but Russia has obviously shown quite how dangerous this reliance is.

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I am cautiously optimistic that in the long term, this energy war may push Europe to try to iron out this chronic weakness. It may not be blessed in the fossil fuel resource department, but for renewable energy, it is a different story.

Europe has no disadvantage whatsoever in its ability to generate and store renewable energy. This energy supply could be self-sufficient and cheap. And hey, if the planet benefits too, then happy days.

In May, the EU outlined plans for a “massive” increase in solar and wind power in order to reduce its reliance on Russian oil and gas. The target had been that 40% of the EU’s energy mix would be renewable by 2030. This proposal bumped that to 45%.

It still doesn’t feel like it’s enough, but this would be a colossal move away from all the EU has ever known. “It is clear we need to put an end to this dependence and a lot faster (than what we had) we had foreseen before this war,” said Frans Timmermans in May, the EU official who headed up the green deal.

As I said, the target was in place well before the Russian war. Had the EU been swifter in moving towards this renewable energy, it would be in a significantly stronger position to support Ukraine today.

What happens next?

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Between the Chinese economy still operating below full capacity – although, as I wrote about last week, looking like it will open up sooner than expected – as well as a ludicrously strong dollar and the aforementioned energy squeeze in Europe, oil demand is being pulled down.

But as Christmas creeps closer, the thermometer continues to drop. The hardest is yet to come, but there is no doubt that the drop of 24% in demand from the EU is a blow to Putin. The ban on Russian crude oil now turns the dial up again.


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