[HN Gopher] Ask HN: Why are energy prices soaring in Europe?
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Ask HN: Why are energy prices soaring in Europe?
This is maybe a dumb question. But I need to ask it. Energy prices
go up in a really crazy way. Why? Is it just the conflict in
Ukraine? Why would that make the prices go so up; isn't it mostly
natural gas from there? Doesn't Europe also have coal, nuclear and
renewables; and import of oil from Middle Eastern countries?
Author : shp0ngle
Score : 11 points
Date : 2022-08-29 21:16 UTC (1 hours ago)
| codefreeordie wrote:
| There are a few different aspects.
|
| One is that Europe -- and in particular, some of the richest
| parts of Europe -- gets a material fraction of its energy from
| Russia. Sanctions from Europe eliminated some of this supply, and
| retaliation from Russia eliminated more of it.
|
| The timing coincides with a period when Europe was _already_
| going to have significant energy shortages, as Germany has been
| aggressively decommissioning its nuclear generation capacity and
| Europe generally has been trying to "decarbonize" its energy
| markets in a manner that removes carbon-intensive capacity much
| faster than it builds out new renewable capacity (thereby
| reducing the total amount of energy produced).
|
| On top of that, European populations are growing (a little),
| which produces (a little) more energy demand.
|
| Europe does produce coal, but it's been producing less and less
| over time, due to the decarbonization efforts I mentioned above,
| and also because some of the mines are quite old and getting
| somewhat mined out. (Poland, for example, still produces lots of
| coal, but the cost to produce it keeps going up as they have to
| dig further and further to get to more -- new mines are not
| opening)
|
| In addition, (very realistic) fears of a shortage coming in the
| winter have led to people trying to purchase now as much as
| possible the energy that they will need in the winter, which is
| why prices are skyrocketing now rather than waiting until the
| shortage actually happens. (You can see this most acutely in
| Poland, where people are literally waiting in their personal
| vehicles in a three-day-long line outside the local coal mine to
| purchase their winter allocation of heating coal. (The government
| in Poland has already begun to ration coal, allowing each
| household to only purchase their fixed allocation from the
| mines).
|
| Some energy demand is highly "elastic" -- that is, if the price
| goes up, the demand falls. If you use energy to make stuff, if
| the cost of the energy goes above the value of the stuff, you
| stop making the stuff. But a lot of the demand is pretty
| inelastic -- a family in a place with a cold winter will probably
| buy enough energy to heat their home at least to about 55F at
| almost any price that isn't totally ruinous, and will continue to
| buy energy to heat to at least about 50F even at ruinous prices.
|
| That means that when there's a shortage, prices will move up
| gradually to a point, and then suddenly they'll spike very high
| very fast. That's because at first, as prices go up, demand falls
| -- people and companies stop using as much energy and start both
| being more efficient and also foregoing energy-intensive
| activities -- but after a certain point, higher prices don't
| drive out that much more demand, because all of the uses of
| energy that people are willing to curtail have already been
| curtailed. At this point, prices spike very high very fast, as
| each new increase in price only reduces demand very slightly, and
| so the shortage remains.
|
| If prices stay this high for an extended period, people can take
| drastic actions to reduce their use (for example, multiple
| families could move into houses, so that there were fewer homes
| to heat, or they could, as one German minister suggested, only
| heat a single room per house and sleep all in one room at night
| in the winter -- but they won't do these things unless they have
| no choice, and in some cases they can't do them quickly anyway.
| sparkie wrote:
| The elephant in the room: The ECB creating > 2 trillion euros out
| of thin air for COVID response (As did the BoE, the Fed etc),
| whilst simultaneously suspending half their economies so that
| productive output dropped significantly.
|
| It has been known for centuries that large increases in the stock
| of money result in broad price increases, and there is a mountain
| of historical evidence to support this notion. It is largely
| ignored by modern "economists" (particularly the modern monetary
| theorists, who hold the idea that we can just keep creating money
| at no cost).
|
| Energy price increases are not just unique to Europe, but they
| are occurring globally for the same reasons. This trend began
| well before the Russian invasion, but clearly after the 2020
| response to COVID.
|
| From most-impactful to least-impactful on the price of energy
| (and everything else), you have 1: Reckless monetary policy. 2:
| Reckless green agenda. 3. RUS/UKR conflict.
|
| #3 certainly provides a convenient excuse for those in power
| though, who are directly responsible for #1 and #2.
| Ekaros wrote:
| In general it seems that energy market is rather finely balanced
| thing. A covid lockdowns pushed it into other direction. Thus
| prices going really low or in rare cases even negative. Then with
| recovery they recovered, but there isn't too much slack on global
| scale and supply I think was even somewhat scaled back.
|
| Now next stop of getting supply from rather large player with
| post covid recovery pushed the price massively to other
| direction. And do to how electricity markets work not much was
| needed. Now combine this with very dry summer resulting less
| hydro and even nuclear shutdowns. And we are really approaching
| perfect storm.
| tomohawk wrote:
| Because previous political leaders of important countries made
| very unserious decisions to become dependent on energy from
| Putin. Some of these leaders got cushy jobs at Putins pet
| companies after leaving office.
|
| On top of that they also decided to make a big transition in
| energy, but on the cheap. They made a bet that they could move to
| intermittent energy sources without breaking the bank, and by
| ignoring fundamental power engineering. A key part of this
| strategy was to fill in for what intermittent sources could not
| supply by increasing energy reliance on energy from Putin (more
| natural gas and coal). So these countries started turning off
| nuke and coal plants.
|
| This was a really bad bet, and they were told very publicly that
| it was a bad bet, because it was highly unlikely that Putin would
| not take advantage of the situation.
|
| In 2014, Putin took advantage of the situation. Putin shot down
| an airliner, took over Crimea, and killed a lot of people. These
| important countries doubled down on their bet on Putin and
| appeased Putin with a nice settlement - Putin got eastern Ukraine
| and Crimea. And they agreed to become more dependent on energy
| from Putin.
|
| This year, figuring he had everyone whupped good and proper,
| Putin went for broke and decided to take over all of Ukraine,
| starting by killing the leader of Ukraine. Despite many attempts,
| this has failed, and these important countries have suddenly
| realized what others had been telling them for years.
|
| The cost of disentangling from Putin is now very high, and you're
| seeing that in energy costs.
| pettycashstash2 wrote:
| A lot of energy was imported from Russia via Nord Stream 1 & 2
| pipeline. Since the Ukraine war, Russia has been placed under
| embargo and itself reduced gas deliveries to Europe.
|
| https://en.wikipedia.org/wiki/Nord_Stream
|
| Direct from this article:
| https://foreignpolicy.com/2022/08/26/europe-energy-crisis-na...
|
| Normally, Europe can refill its gas storage during the summer and
| coast in the winter, when usage is higher. Now, with colder
| months looming and Russia's tightening chokehold on natural gas
| flows, Europe has been locked in a race against time to fill its
| tanks, which leaders have stocked by paying eye-watering prices.
| So far, experts said, European nations have been largely on track
| with their plans--but that doesn't mean that they will be out of
| the woods come winter.
|
| In the winter, Europe typically "uses a lot of what it has in
| storage while, at the same time, importing lots of gas from other
| sources," Munton said. "It needs both. But as we think about this
| winter, there is a very real threat that there won't be any
| Russian gas at all." In normal times, Russian gas supplies about
| 40 percent of European imports.
|
| Without Russia's supply in the winter, Munton added, European
| nations will be forced to rely on imports of liquefied natural
| gas (LNG) even more from suppliers such as the United States. The
| problem is that Asia--a larger LNG market--is also vying for the
| same supplies, which means prices are always going to be higher
| than old piped gas from the East.
|
| "That's really the crisis that Europe and the world confronts,"
| he added.
|
| As Europe abandons Moscow's energy supply, many leaders have
| rushed to secure alternative deals and supplies with other
| countries. Italy has secured more gas from Algeria while other
| nations have turned to Azerbaijan, Norway, and Qatar. Germany has
| also expressed its hopes for a new LNG deal with Canada, which in
| turn has been considerably less optimistic. Others have invested
| considerably more into LNG infrastructure, with Germany racing to
| build five floating LNG terminals and the Netherlands, Finland,
| and Italy all preparing for more floating units to import gas.
| bj-rn wrote:
| >A lot of energy was imported from Russia via Nord Stream 1 & 2
| pipeline
|
| Nord Stream 2 was never in operation.
| senttoschool wrote:
| Thanks.
|
| The question is, why didn't Europe secure energy supply before
| inflicting self-sanctions?
|
| When Europe sanctions Russia, they're literally sanctioning
| themselves.
|
| Why not limit their energy sanctions initially, supply arms to
| Ukraine, and then plan to get off Russian gas completely over
| the next 5 years for example?
|
| The need to appease the public immediately seems to have done
| just as much pain to EU as Russia.
| mentalpiracy wrote:
| >>> The need to appease the public immediately seems to have
| done just as much pain to EU as Russia.
|
| Interesting way to frame the issue. FWIW, I would have gone
| with "the need to inflict actual repercussions on Russia for
| invading a neighbor and slaughtering civilians."
|
| Not hard to believe the European public takes issue with
| that, so close to home.
| senttoschool wrote:
| >Interesting way to frame the issue. FWIW, I would have
| gone with "the need to inflict actual repercussions on
| Russia for invading a neighbor and slaughtering civilians."
|
| I fear that this conversation will take a drastic turn. But
| my view is that Russia invaded because Ukraine wouldn't
| backdown from joining NATO. After Russia invaded, Ukraine
| said it won't join NATO if Russia stopped the war. So isn't
| all this pain simply because Ukraine's leader (maybe backed
| by US?) didn't budge until too late?
|
| Why should Europe suffer because Ukraine didn't want to
| budge but eventually did?
| mentalpiracy wrote:
| >> So isn't all this pain simply because Ukraine's leader
| (maybe backed by US?) didn't budge until too late?
|
| Flatly, no, it is not.
| kirykl wrote:
| Poor planning and backed into a corner with policy
|
| https://youtu.be/OXqZf72pAhk
| simonblack wrote:
| Dumb policies mainly. Most of Europe deliberately refused long-
| term contracts for gas which would have locked in a lower price
| of gas and thought they'd get a better deal by throwing
| themselves on the mercies of the spot-price gas market.
|
| Unfortunately for them, the price of gas on the spot-market has
| risen many-fold because of sanctions on Russia which reduced the
| amount of available gas, and caused 'Ye Olde Supply and Demand'
| price increases.
|
| _Hungary, on the other hand, continued buying gas from Russia on
| a long-term contract and they continue laughing all the way to
| the bank while their other European neighbors are screaming at
| the high prices of spot-market gas._
|
| Of course, those countries screaming for gas could have benefited
| by opening up the NordStream 2 pipeline at any time previously.
| But they'd better open it up soon, because Russia has said that
| if NordStream 2 is not opened up soon, the gas _currently
| allocated_ for it will be allocated elsewhere. Meaning there
| wouldn 't be any gas in the pipeline any more, even if the
| Germans suddenly decided to finally open it up.
|
| Dumb is as dumb deserves to be.
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