In early October 2021, the gas price set an absolute record – $1,969 per thousand cubic meters. Now it has dropped again – on October 25, fuel on the exchange is traded at $1,115. This does not mean that everything will be fine now – this year, prices are constantly jumping. Due to the shortage of gas, many countries in Europe and the world have found themselves on the brink of an energy crisis – it may come this winter. I3 energy companies have closed in Britain alone because they could not buy gas at the new prices.
We’ve wound the explanation by “Babel”: the authors as simply and as briefly as possible tell why the crisis began and who is to blame for it.
The first reason is weather and climate. Last winter was very cold in both Europe and Asia. Gas reserves dropped sharply – they spent it on heating. Then came a hot and calm summer: air conditioners needed a lot of energy – wind and hydroelectric power plants could not cope. By the winter of 2021, European gas storage facilities were severely depleted.
Another reason is the massive exit of most countries from the lockdown. For the first time after a long pause, the leading (and not so) economies started operating at full capacity, and the demand for fuel increased sharply. The Chinese economy started working a little earlier, and China managed to buy 80 percent of the additional liquefied gas on the world market.
(Here are two main ways of transporting natural gas – by pipeline and by the sea in the liquefied form on special gas carriers. The gas turns into a liquefied state after cooling to -160° C).
The main driver of price growth is China. He is trying to abandon non-environmentally friendly coal and is consistently switching to gas. Over the past ten years, the demand for it in China has tripled.
“Every year, the PRC connects 15 million people to gas in its coastal cities. It’s like adding the Belgian and Dutch markets at the same time. So when it gets colder in China, prices rise in Britain and Germany,” explains Henning Gloystein of the Eurasia Group consulting company.
Fierce competition with China for gas is a consequence of the EU’s attempt to offer Asian economies a life without coal. Deliveries not through pipelines but by sea create something like an oil market with incredible competition. Therefore, it becomes more and more difficult to “book” contracts in 2021.
The coal and gas markets are linked – the price of coal is also rising. In 2020, China pledged to cut carbon emissions to zero by 2060 and began phasing out coal. It used to consume almost half of the planet’s coal. Due to China, the demand for coal temporarily dropped, along with this, its production decreased. The gas shortage has again boosted the popularity of coal globally, but now only large importers like India, whose energy is 70% dependent on coal, are enough.
The growing crisis exacerbated several accidents – a train crash blocked Africa’s largest coal terminal in South Africa, and large mines in Illinois in the United States were flooded.
Russia worsened the gas situation in Europe, but contrary to forecasts, it did not become the main driver of the crisis. Gazprom supplies Europe with gas for 35%. He could increase supplies and save the region from the crisis in conditions of increased demand, but he is in no hurry to do so. Russia has approximately the same energy trends as the rest – domestic demand for gas has grown, but there is no free gas. Or she simply does not want to give it, blackmailing Europe to launch Nord Stream 2 as soon as possible. The International Energy Association believes that even now if it so wishes, the Russian Federation can send 15% more gas to the EU. However, blackmail may turn out to be a bluff – if Russia does not have free gas, the new pipeline will not change the situation.
Moldova became a new victim of the crisis, which asked Russia for a 50% discount on gas. The Kremlin has delivered an ultimatum to Chisinau – either a new contract with a discount of only 25% and a higher price or Moldova remains without gas at the most critical moment.
Moldova refused these conditions, the country’s parliament declared a state of emergency in the energy sector until November 20. Ukraine agreed to help overcome the crisis – it will provide Moldova with 15 million cubic meters of gas free of charge with the condition of returning it by the end of winter.