2021–2022 global energy crisis

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Natural gas prices in Europe and United States, 2018–July 2022
  National Balancing Point NBP (UK) natural gas prices
  Europe TTF natural gas prices
  United States Henry Hub natural gas prices

The 2021–2022 global energy crisis began in the aftermath of the COVID-19 pandemic in 2021, with much of the globe facing shortages and increased prices in oil, gas and electricity markets. The crisis was caused by a variety of economic factors, labor shortages, disputes, climate change, and was later compounded by the 2022 Russian invasion of Ukraine.

Gas shortages in particular have resulted in an increase in food prices and an increase in the use of coal. The response by governments worldwide to the energy crisis have so far been piecemeal and largely ineffectual.

Causes

Slow supply recovery after pandemic

The COVID-19 pandemic in 2019–2020 caused a rapid drop in energy demand and a corresponding cut in oil production, and despite the 2020 Russia–Saudi Arabia oil price war, OPEC responded slowly to the demand recovery under new normal, causing a supply-demand imbalance. The 2021–2022 global supply chain crisis that further stressed the delivery of extracted petroleum.

Coal trade dispute

In December 2020, after months of restrictions, China fully blocked coal imports from Australia, which was China's largest source of imported coal.[1]

Climate abnormality impact on renewable energy

See also: 2020–2022 North American drought, 2022 European heat waves, and 2022 China heat wave

In 2021, Brazil's worst drought in almost a century threatened its electricity supply.[2][3] Brazil relies on hydropower for two-thirds of its electricity.[4]

Euractiv reported that European Commissioner for Climate Action Frans Timmermans told the European Parliament in Strasbourg that "about one fifth" of the energy price increase "can be attributed to rising CO2 pricing on the EU's carbon market".[5]

In 2022, Europe's driest summer in 500 years had serious consequences for hydropower generation and power plant cooling systems.[6][7][8] According to the New York Times, the drought "reduced hydropower in Norway, threatened nuclear reactors in France and crimped coal transport in Germany."[9] Record droughts in China and California also threatened hydropower generation.[10][11][12]

Russian invasion of Ukraine

Russia is a leading producer and exporter of oil and gas. In 2020, it was the third largest oil producer in the world, behind the US and Saudi Arabia, with 60% of its oil exports going to Europe.[13][14]

The Russian military buildup outside Ukraine and subsequent invasion threatened the energy supply from Russia to Europe.[15][16] International sanctions during the Russo-Ukrainian War were introduced after the Russian annexation of the Crimea in 2014, and subsequently tightened after the February 2022 Russian invasion of Ukraine; later the new Nord Stream 2 pipeline's certification was also suspended. Russia had already refused to increase exports to Europe before its invasion,[17] and the state reacted to European sanctions by reducing gas deliveries to Germany through the Nord Stream 1 pipeline,[18][19] which it fully halted in early September, although the pipelines continued to contain natural gas.[20] Gas leaks occurred on the pipeline in late September, resulting in the pipes becoming inoperable. European Union and NATO officials said the leaks were caused by sabotage, but did not name a responsible party.[17] Other pipelines, such as the Druzhba pipeline, largely continued to operate.[21]

Other supply-side problems

In October 2022, OPEC+ cut oil production by two million barrels per day. OPEC+ claimed it is trying to prevent price volatility, although some analysts believe the goal is to increase oil prices, which had decreased over the previous few months.[22] Saudi Arabia's foreign ministry stated that the OPEC+ decision was "purely economic" and taken unanimously by all members of the conglomerate.[23]

Global effects

Main articles: 2021–2022 inflation surge and 2022 food crises
Further information: Regional effects of the 2022 global energy crisis

2022 food crises

Fertilizer prices 1992–2022. The 2007–2008 world food crisis happened when fertilizer prices spiked then.
  DAP
  Potassium chloride
  Phosphorite
  Triple Superphosphate
  Urea
  Food Price Index
  Oils
  Cereals
  Dairy
  Meat
  sugar
Commodity Prices
  soybean
  wheat
  corn
  copper

Natural gas is a significant key component in producing fertilizers.[24] The development of synthetic nitrogen fertilizer has significantly supported global population growth — it has been estimated that almost half of the world's population is currently fed as a result of synthetic nitrogen fertilizer use.[25]

Rising energy prices are pushing agricultural costs higher, contributing to increasing food prices globally.[26] The agriculture and food industries use energy for various purposes. Direct energy use includes electricity for automated water irrigation, fuel consumption for farm machinery and energy required at various stages of food processing, packaging, transportation and distribution. The use of pesticides and mineral fertilizers results in large quantities of indirect energy consumption, with these inputs being highly energy intensive to manufacture.[26][27] While the share varies considerably between regions – depending on factors such as weather conditions and crop types – direct and non-direct energy costs can account for 40% to 50% of total variable costs of cropping in advanced economies such as the United States. Higher energy and fertiliser prices therefore inevitably translate into higher production costs, and ultimately into higher food prices.[27]

Energy transition

Aside of inflationary pressures, the 2021/2022 energy crisis has also increased the use of coal in energy production worldwide. Coal use in Europe already increased by 14% in 2021, and is expected to rise another 7% in 2022. Soaring natural gas prices have made coal more competitive in many markets, and some nations have resorted to coal as a substitute for potential energy rationing in winter 2022/2023. With demand for coal increasing in Asia and elsewhere, global coal consumption is forecast to rise again by 0.7% in 2022 to 8 billion tonnes. Burning coal or petroleum products emits significantly higher amounts of carbon dioxide and air pollutants compared to natural gas. The return to coal slows the transition to greener and more sustainable energy sources. Both the United States and Russia are top exporters of natural gas and coal.[28][29]

Europe has been historically leading with regard to global climate policy, pledging to cut emissions to at least 55% below 1990 levels in the next 8 years. But sanctions on Russia are crushing global supplies of fossil fuels with drastic price increases. Russia's invasion of Ukraine in 2022 risks unravelling decades of hard work to reduce emissions on the European continent. After a long period of optimistic projections on reducing Europe's carbon footprint, governments there aren't keeping anything off the table, including reopening coal-fired power plants or upping oil imports, as well as prolonging the phase-out for nuclear energy.[30]

Responses

Overall, the response to this rising crisis have been to return to coal and other polluting energy sources, subsidizing prices, easing gas taxes, or even lowering the price of carbon dioxide emissions. These short-term solutions lower electricity bills but go exactly in the opposite direction of what is needed to prevent the 1.5 degree increase in temperatures, increasing the likelihood of a climate apocalypse.[31][32]

The UK government has turned to Qatar to seek a long-term gas deal to ensure a stable supply of liquefied natural gas (LNG) to the UK.[33] Prime Minister Boris Johnson asked Sheikh Tamim bin Hamad Al Thani, the Emir of Qatar, for help during a meeting at the UN General Assembly in September 2021.[34][35] EU suspended an antitrust investigation into QatarEnergy in February 2022.[36]

In October 2021, U.S. producer Venture Global LNG signed three long-term supply deals with China's state-owned Sinopec to supply liquefied natural gas. China's imports of U.S. natural gas will more than double.[37]

On 28 October 2021, natural gas prices in Europe dropped by at least 12% after Gazprom announced it would increase supplies to Europe after Russian domestic storage sites were filled on about 8 November. Norway had increased gas production and lower coal prices in China also helped lower natural gas prices.[38][39]

Hungarian Prime Minister Viktor Orbán blamed a record-breaking surge in energy prices on the European Commission's Green Deal plans.[40] Politico reported that "Despite the impact of high energy prices, [EU Commissioner for Energy] Kadri Simson insisted that there are no plans to backtrack on the bloc's Green Deal, which aims to make the EU climate neutral by 2050."[41] Speaking at the COP26 climate summit in Glasgow, Czech Prime Minister Babiš denounced the European Green Deal,[42] saying that the European Commission "continues to propose dangerous policies such as the ban on combustible engines in 2035, or carbon allowances for transport and individual housing. Due to improper legislature and speculation, the price of emission allowances has gone out of control, resulting in the surging costs of electricity."[43]

Countries by natural gas proven reserves (2018), based on data from CIA World Factbook. Iran has the world's second largest natural gas reserves after Russia.

U.S. President Joe Biden's national security adviser Jake Sullivan released a statement calling on OPEC+ to boost oil production to "offset previous production cuts that OPEC+ imposed during the pandemic until well into 2022."[44] On 28 September 2021, Sullivan met in Saudi Arabia with Saudi Crown Prince Mohammed bin Salman to discuss the high oil prices.[45] The price of oil was about US$80 by October 2021, the highest since 2014.[46][47] USA delivered 16 billion cubic meters of LNG to Europe in January 2022, and 6 billion in February.[48]

Iranian oil minister Javad Owji said if U.S.-led sanctions on Iran's oil and gas industry are lifted, Iran will have every capability to tackle the global energy crisis.[49][50] The Biden administration was pressed on potential oil deals with Saudi Arabia, Venezuela, and Iran that would have them increase their oil production.[51]

Qatar's energy minister Saad Sherida al-Kaabi stated that there "is a huge demand from all our customers, and unfortunately we cannot cater for everybody. Unfortunately, in my view, this is due to the market not investing enough in the [gas] industry."[52]

European Commission President Ursula von der Leyen said that "Europe today is too reliant on gas and too dependent on gas imports. The answer has to do with diversifying our suppliers ... and, crucially, with speeding up the transition to clean energy."[53][54]

European Commissioner for Climate Action Frans Timmermans suggested "the best answer to this problem today is to reduce our reliance on fossil fuels."[55]

In late October 2021, Russian ambassador Andrei Kelin denied that Russia is withholding gas supplies for political reasons. According to the ambassador, delivery of natural gas through Ukraine has been increased by up to 15% for November 2021, but it was unclear whether this increase would have an immediate effect on the natural gas supply in Europe. Furthermore, such increase in gas delivery was hindered by a lack of modernization of the Ukrainian gas pipelines, according to the source.[56]

The German chemical company BASF was forced to cut production[57]

German chancellor Olaf Scholz announced plans to build two new LNG terminals.[58] Economy Minister Robert Habeck said Germany reached a long-term energy partnership with Qatar,[59] one of the world's largest exporters of liquefied natural gas.[60] Habeck said Germany plans to end imports of Russian natural gas by mid-2024.[61] In May 2022, the European Commission proposed and approved a partial ban on oil imports from Russia,[62][63] part of the economic response to the Russian invasion of Ukraine.[64] On 18 May 2022, the European Union published plans to end its reliance on Russian oil, natural gas and coal by 2027.[65]

On 13 July 2022, the Kremlin expressed hope that a visit by President Biden in Saudi Arabia to boost OPEC oil production would not foster anti-Russian sentiments there. Russia is the largest oil and gas exporter after Saudi Arabia and enjoys a highly valued cooperation with the Arab country in the framework of the OPEC group. But at current levels, major Gulf producers have little to spare, and Russia blames international sanctions for higher energy prices around the world.[66]

Since the June 2022 G7 meeting, plans had been circulating to cap the price of Russian energy commodities as initially suggested by U.S. Treasury Secretary Janet Yellen and E.U. Commission President Ursula von der Leyen, in order to lower price levels for Western nations and deprive Russia of its profits. After G7 finance ministers expressed their intention to implement a price cap, a Kremlin spokesman responded, "companies that impose a price cap will not be among the recipients of Russian oil." Energy analysts have also expressed skepticism that a price cap would be realistic because the coalition is "not broad enough"; OPEC+ called the plan "absurd". Likely the U.S. and the E.U. will attempt to follow through with the plan by limiting Russia's access to Western insurance services.[67]

In June 2022, the United States government agreed to allow Italian company Eni and Spanish company Repsol to import oil from Venezuela to Europe to replace oil imports from Russia.[68] French Finance Minister Bruno Le Maire said that France negotiated with the United Arab Emirates to replace some Russian oil imports.[68]

Additionally, on 15 June 2022, Israel, Egypt and the European Union signed a trilateral agreement to increase natural-gas sales to European countries seeking alternative sources to lessen their dependence on Russian energy supplies.[69] In July 2022, the European Commission signed an agreement with Azerbaijan to increase natural gas imports.[70]

On 29 September 2022, Germany presented a €200 billion plan to support industry and households.[71] German Economy Minister Robert Habeck complained that the United States and other "friendly" gas supplier nations were profiting from the Ukraine war with "astronomical prices". He called for more solidarity by the US to assist energy-pressed allies in Europe.[72] French President Emmanuel Macron criticized the United States, Norway and other "friendly" natural gas supplier states for the extremely high prices of their supplies, saying that Europeans are "paying four times more than the price you sell to your industry. That is not exactly the meaning of friendship."[73][74]

See also

References

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