Richard Heinberg’s latest monthly MuseLetter begins below. — MCM
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What You Need to Know about the Energy Crisis
By Richard Heinberg | Post Carbon Institute
In May I wrote about the emerging energy and food crisis gripping the world due largely to the Russia-Ukraine conflict. The crisis continues to unfold. However, most people are aware of it only via high prices—for gasoline, electricity, natural gas, and food—and through widespread chatter among economists about inflation and what should be done to tame it. Sadly, prices by themselves are not helpful in understanding why the crisis has emerged and how it is likely to develop in coming months. Periodic overviews of the situation that emphasize systemic causal connections and feedbacks may serve that purpose better, so consider this the second in a series of such overviews. I’ll sort information and analysis by region.
Europe and UK: Hungry and Freezing in the Dark?
In Europe especially, the word “crisis” is fully justified. Sharply curtailed availability of natural gas from Russia will not be fully compensated for by LNG shipments from the US or other gas-exporting countries. Therefore, Europe’s leaders are now discussing how to ration existing supplies—and are preparing for a worst-case scenario in which winter weather is particularly severe. Energy bills for European households may surge by 2 trillion euros ($2 trillion) early next year, according to Goldman Sachs (divided equally, that would be nearly $2700 for every adult and child).
The UK is now dealing with the consequences of its neoliberal privatization of utilities (energy, water, and rail), many of which were bought up by nationally-owned utilities in continental Europe. So far, the energy crisis is costing UK households more than those in any country in western Europe. The British government has failed to subsidize the insulation of homes, and households are highly dependent on gas for heating and cooking.
European energy ministers have told political leadership that nations must somehow reduce electricity consumption by 10 percent. Electricity prices are at record levels, with futures prices surging to ten times the past decade’s average. At such price levels, whole industries are having to shut down or consider doing so. Germany is importing coal by rail for electricity generation to make up for shortfalls of natural gas that was formerly delivered by pipeline. The country had been in the process of shutting all its nuclear power plants, but has decided to keep the last three online.
European farm and food groups fear that steep natural gas and electricity prices could lead to shortages of fruit and vegetables by forcing companies to curb production. Refrigeration is electricity intensive, and the heating of greenhouses often relies on natural gas.
In addition to electricity generation, natural gas is used for industrial purposes, often to supply high levels of heat for metallurgy, as a feedstock for chemicals, and for the manufacture of fertilizers. Compared to the US, Europe has relied more on manufacturing and heavy industry for its economic output in recent decades, so the impact of high prices on EU economies will likely be more systemic. According to reports, roughly half of steel, aluminum, and zinc production in the EU is already shuttered and facing an existential crisis.
Natural gas is also used to heat homes and buildings, and it is this application that is likely to cause the most direct discomfort to the largest number of ordinary people. Firewood is suddenly in critically short supply in France, Germany, and other countries. High gas prices through the winter raise the potential for protests and social unrest (Slovenia and Czechia are already seeing them). Governments are trying to head off that risk with caps on the electricity rates that residents will actually be charged. But price caps will leave governments on the hook for the difference between generating costs and what households pay, possibly leading to huge spending deficits over the short term. Leaders hope to minimize deficits by heavily taxing energy companies.
One visibly prominent gauge of the seriousness of the electricity crisis in Europe: the mayor of Paris has said that lights on the Eiffel Tower will be turned off several hours earlier than usual in order to save energy.
North America: Excused for Now
So far, Americans have been spared the brunt of the energy crisis. Indeed, motorists have recently enjoyed lower gasoline prices due to a slump in the cost of oil, due in turn to a fall in demand from China (see below) and fears of an economic slowdown. The US is somewhat insulated from energy supply problems because . . . READ MORE . . .