Europe has made it through the winter largely without incident: there were no major blackouts or power outages, and fears of large-scale civil unrest did not come to pass. What’s more, the price of natural gas – which in August was more than 18 times higher than its recent historical average – is now a mere 2.5 times higher.
That’s the good news.
Here’s the bad. We didn’t avoid catastrophe thanks to wise and far-sighted choices on the part of our leaders. We basically got lucky. The winter of 2022/23 was one of the warmest in recorded history, dramatically reducing the demand for natural gas. Had the temperature been normal, things could have gotten fairly dicey.
There’s more bad news. Keeping the lights on and the gas burning didn’t come cheap. As of September last year, European countries had earmarked €768 billion for energy subsidies. OECD countries (of which Europe comprises the lion’s share) spent about 18% of GDP on energy in 2022, compared to only 10% the year before.
As an apocryphal quote has it, “A billion here, a billion there, and pretty soon you’re talking about real money.” Just how much is €768 billion?
One potential yardstick is the cost of reconstruction for Ukraine, which in December was estimated at €500 billion and may now be as high as €600 or €700 billion. To be clear: this isn’t some estimate of the ‘total cost of the war’ – which would be far, far higher. It’s just the cost of reconstruction.
Nonetheless, it implies that the amount European countries have earmarked for energy subsidies would be enough to repair all the damage to Ukraine’s buildings and infrastructure that’s been sustained since the start of the war – a war that has seen whole towns reduced to rubble.
As the analyst Ralph Schoellhammer notes, European countries imported more LNG last year than Japan, South Korea and China combined. Yet this is set to change as China’s economy comes roaring back after the lockdown hiatus.
While the creeping global recession may temper demand for LNG, rising industrial activity in China will have the opposite effect. Keeping a lid on European gas price thus requires ongoing ‘demand destruction’ – a fancy way of saying that factories will have to make do with less. (As of December, industrial gas demand is about 25% below the 2013–2019 average.)
Europe’s energy crisis still isn’t over. But we’re admittedly in a better position that I’d thought we’d be – owing mainly to warmer weather.
Profanity and abuse will be removed and may lead to a permanent ban.