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Pipes at the landfall facilities of the Nord Stream 1 gas pipeline are pictured in Lubmin, Germany on March 8, 2022.HANNIBAL HANSCHKE/Reuters
The euro plunged to a new 20-year low and energy prices soared after Russia turned off the taps of the main source of natural gas to Europe, increasing the prospect of rolling blackouts and factory closures on a continent starved for fuel.
The euro dropped by as much as 0.8 per cent on Monday to US$98.78 cents, its weakest level since 2002. European Gas prices, already up tenfold in a year, took another leap, with benchmark Dutch futures opening about 30 per cent higher, to more than 270 euros per megawatt hour (MWh).
In energy equivalency terms, that is the same as US$450 per barrel of oil.
Oil prices also rose, partly because OPEC, the Saudi-led oil cartel, has signalled it may not raise output, as American and European governments want it to do, to bring down prices. Brent crude, the effective international benchmark, was up almost 4 per cent in early trading, taking it to US$97. That is up 33 per cent in one year though still well short of its recent high of US$139.
OPEC+ to weigh rollover or small cut at Monday meeting, sources say
The trigger for the latest gas price was Russia’s decision over the weekend to indefinitely suspend gas flows through the Nord Stream 1 pipeline, the main source of Russian gas to Germany. Gazprom, the Kremlin-controlled company that holds a monopoly on gas exports, had signalled that it would reopen the pipeline on Sunday at 20 per cent capacity after three days of maintenance.
Russia claimed that a technical fault was behind the decision to keep Nord Stream 1 closed, but that argument was widely dismissed in Brussels and other European capitals.
European leaders have accused Russian President Vladimir Putin of using energy as a weapon against Europe, where many countries have implemented financial and economic sanctions against Russia and are supplying weapons to Ukraine. Moscow is no longer fully denying that the gas shortfalls are politically motivated. Dmitry Peskov, Russian President Vladimir Putin’s spokesman, said on Monday that Russia’s gas supplies would not fully resume until the “collective west” lifts sanctions against Moscow.
In a message posted on Telegram over the weekend, Russian president Dmitry Medvedev said that Germany was “acting as an enemy of Russia” and that European countries “have declared hybrid war against Russia.”
On Monday, Timothy Ash, strategist at BlueBay Asset Management of London, said on Twitter that “Medvedev’s comments make it clear that Russia is blackmailing the West – stop supporting Ukraine if you want energy from Russia.”
Energy prices have reached unaffordable levels for many European families and small businesses, with a wave of closures and bankruptcies expected. In Italy and the U.K., owners of restaurants and pubs have seen their electricity and gas bill rise about 400 per cent over a year.
High fuel prices are already triggering political instability and civil unrest in parts of Europe.
On Saturday, an estimated 70,000 people flooded into Prague’s Wenceslas Square to demand that the ruling coalition, which had just survived a confidence vote, take action to bring down prices. “The aim of our demonstration is to demand change, mainly in solving the issue of energy prices, especially electricity and gas, which will destroy our economy this autumn,” protest co-organizer Jiri Havel told a Czech news site.
The European Commission (EC) and European governments are scrambling to design support packages for utilities and consumers as energy reaches crippling price levels.
On Sunday, Finland said it will offer up to the equivalent of US$10-billion in liquidity guarantees to power companies that face insolvency. Sweden said it would do the same, offering as much as US$23-billion. “This has the ingredients for a kind of Lehman Brothers of energy industry,” Finnish Economics Affairs Minister Mika Lintila said, referring to the collapse of the Wall Street bank investment bank in 2008 that brought on the global financial crisis.
EU energy ministers to discuss gas price cap, emergency liquidity help: document
At the same time, German Chancellor Olaf Scholz announced that his coalition government will impose a windfall tax on electricity producers and use that income to finance a euros 65-billion package of relief measures to fund reduced prices. He called the tax an “electricity price brake,” which would allow householders buy basic amounts of electricity at reduced prices.
The EC, meanwhile, is considering a package gas price caps and a tax on excessive energy profits that would be applied throughout the 27-state European Union. These proposals, and other emergency interventions, such as an EU-wide credit line for struggling utilities, will be discussed Friday at a meeting of energy ministers.
With Russia having eliminated or reduce gas supplies to more than a dozen EU countries, EU energy ministers over the summer pledged to reduce gas consumption by 15 per cent to try to avoid an energy crunch over the winter that could result in gas rationing and rolling factory closures.
Europe’s energy crisis is made worse by the drought, which has hit the ability of hydro plants to generate electricity. In Italy, where rivers everywhere have dried up, electricity generation from hydro is down by almost half. Some nuclear plants in Europe have been forced to shut, or reduce output, because of lack of water, which is used to cool the reactors.
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