Europe needs to take more robust initiatives to achieve energy security

Following the outbreak of the Russia-Ukraine conflict earlier this year, global gas production and exports have been challenged. Since Europe is heavily dependent on energy imports, the shortage of natural gas supply and the resulting rapid increase in electricity prices are causing headaches for many European countries. In order to cope with the energy supply crisis and survive the severe winter, many EU member states are trying to find natural gas and fill up gas storage facilities on the one hand, while on the other hand, the governments are trying to reduce the energy consumption and usage costs of people and enterprises through fiscal policies and subsidies.

The cold winter in Europe has arrived, and from the current situation, the EU has gained some results by taking gas storage measures in advance. According to the statistical analysis of the International Energy Agency (IEA), the filling level of natural gas storage facilities in the EU has now reached 95%, which is 5% higher than the 5-year average. However, this does not mean that the EU has come out of the energy crisis.

IEA Director General Fatih Birol said:- "Discussions about Europe's gas supply risk complacency due to recent mild weather and lower gas prices, but we are not out of the woods yet." EU countries still need to prepare for a severe energy supply crisis that could re-emerge in the coming year.

The energy crisis has had multiple negative impacts on the European economy. The high price of natural gas has caused the cost of power generation to soar, and the level of inflation in the EU and the eurozone has climbed, while European industrial production has also fallen into contraction due to the shortage of energy supply.

In terms of inflation, Eurostat released data showing that the Eurozone Harmonized Index of Consumer Prices (HICP) rose by 10.7% in October, up from 9.9% in September, further increasing inflationary pressures in the Eurozone, far exceeding the 2% inflation target set by the European Central Bank. Specifically, energy and food, tobacco and alcohol prices made the largest contribution to the eurozone inflation rate, with prices rising by 41.9% and 13.1% year-on-year, respectively, and higher than the 40.7% and 11.8% in September.

The rise in energy prices has raised the price of electricity generation in the EU as a whole. According to energy consulting firm VaasaETT, the average retail price of natural gas in the EU in October was about 0.18 euros per kilowatt-hour, twice as much as in the same month last year. On a monthly basis, the average unit price of electricity in Europe rose 3.4% in October from a year earlier. At the same time, in response to high energy prices, several EU member states have launched financial subsidy policies. However, these large-scale subsidies did not ease the cost of electricity to the public and enterprises to play a significant effect, and these large-scale fiscal spending to some extent exacerbated the level of inflation in the EU.

In industrial manufacturing, the continued shortage of energy supply has forced many European companies to choose to reduce production capacity, downsizing and relocation of production equipment. Some of the metal smelting and fertilizer production and other high energy consumption enterprises choose to directly close the plant. This will significantly damage Europe's industrial production base, and even forced Europe to go to industrialization. Data show that the eurozone manufacturing purchasing managers' index (PMI) in October has been maintained for the fourth consecutive month in the 50 Rongkou line below, its manufacturing industry has fallen into a state of contraction.

For Europe as a whole, this winter is destined to be a challenge. The conditions now favorable to EU gas storage will not necessarily continue in 2023, and a storage capacity of only 5% above the 5-year average will not allow the EU to survive the entire winter. Once the temperature drops rapidly, Europe is likely to face the dilemma of "no gas available" again.

IEA analysis shows that while pipeline gas deliveries from Russia will be significantly reduced in 2022, they will be close to normal for most of the first half of the year, and total pipeline gas supplies from Russia to the EU are expected to reach around 60 billion cubic meters in 2022, but the likelihood of Russia delivering another 60 billion cubic meters of pipeline gas in 2023 is very low. is very unlikely, and Russian gas deliveries to Europe may cease altogether.

The summer of 2023, in turn, will be a critical storage period for the EU. According to IEA forecasts, the EU will have roughly 5 to 35 percent of its gas reserves left at the end of this winter's heating season. This also means that by next summer, Europe will need to replenish 60 to 90 billion cubic meters of gas to maintain the same level of storage as this year by next winter. In the critical summer of 2023, Europe could face a shortfall of up to 30 billion cubic meters of gas.

As a result, Europe may temporarily survive the harsh winter under this energy crisis, but the next round of energy crisis may already be close at hand. In this situation, EU policy makers should not take it lightly. Governments need to continue to take measures to conserve energy and reduce gas consumption, while improving energy efficiency, accelerating the deployment of renewable energy sources such as wind and solar energy, to ensure that the green transformation of energy can continue to advance in the case of energy security. After all, the response to the energy supply crisis can not just hope for warm weather, if another serious energy supply crisis, will drag the already weak European economy into a deeper quagmire.