Energy Crisis Looming in the European Deep Freeze
Last week something so rare happened in Rome that it brought the Eternal City to a virtual standstill.
The cold that has had Europe in its grip all of this month has even stretched halfway down Italy.
As most of the U.S. is enjoying the warmest winter in memory, Europe is in the deep freeze. Temperatures are regularly below 0 Fahrenheit and 15 to 20 below Celsius across wide swathes of the continent.
The weather has frozen the Danube River solid, bringing vital shipping traffic for nine countries to a halt. It may still be the “Blue Danube” for all we know, but there's really no telling when it's under the six inches of ice.
Hardest hit has been Eastern Europe. From Poland in the north to Serbia and Croatia in the south, the weather has been brutal. The worst victim of winter has been Ukraine. Hundreds of people have died, and the government has suspended basic services in parts of the country.
But more ominously, something else has emerged from this reminder that Mother Nature has a grim sense of humor.
The energy grid has begun to buckle.
A Natural Gas-Strapped Continent
The cold weather has drained far more electricity and natural gas than usual.
The gas component is even more essential because it is the primary source of thermal power, and the fuel for a rising amount of electricity generation.
European nations are accustomed to their dependence on foreign gas. It's a result of their decision to wean themselves from coal and of countries – most significantly Germany – choosing to phase out nuclear power.
That, of course, has consequences.
The ability to import supply quickly in emergency situations like this cold spell is very important, and it's a very touchy issue, given their dependence on non-EU suppliers. Europe, with Poland and Ukraine in particular, does not want to rely too heavily on Russia for gas imports.
Of course, if the weather rapidly turns into what feels like another ice age, then health, safety, and warmth should supersede politics.
The Russian gas behemoth Gazprom usually obliges with additional volume.
But not this time.
This Deep Freeze Also Extends into Russia
Temperatures have collapsed in Moscow, and domestic demand for available gas is reaching all-time records.
Gazprom has not only declined the request for additional gas, but it is also cutting the normal export levels because of weather at home.
The last time we saw a problem like this, a “gas war” ensued between Russia and Ukraine. During another nasty weather period a few years ago, the flow of Russian gas across Ukraine to Europe halted altogether.
Remember, Europe gets about 40% of its gas imports from Russia, and 60% of that crosses Ukraine. Because of a political spat between Moscow and Kiev, Europe ended up, literally, out in the cold.
To the European Union, this has been a painful reminder that it needs to diversify its energy sourcing.
The continent is again facing a cut in Russian supply (or at, minimum, no additional needed imports). Yet the culprit this time around is not politics but a brutal winter. And the policy impact of this is a matter I shall be face to fact with in just a couple weeks.
Marina and I leave for London, Windsor Castle, and Scotland at the end of this month (and I hope you'll join me as I write from there). One of my primary responsibilities on these trips is to provide briefings on the North American experience in shale gas development (both positive and negative) and to report on the degree to which such unconventional gas reserves will impact the international market.
(This first impact won't surprise you in the least…)
One immediate result of this developing energy crisis is an accelerated reexamination of domestic shale gas potential in places like Poland and Germany.
Now the Poles have already committed to developing shale gas, and I have been involved in the planning for that move. In Germany, on the other hand, environmental concerns have led to the suspension of shale gas projects.
In the wake this energy shortfall, the EU may reconsider its policies.
The other certain development will be the increasing European interest in importing more liquefied natural gas (LNG). I have told you before about how the rising LNG trade with Europe will benefit U.S. produced shale gas.
This brutal weather is reinforcing both of these approaches in Europe.
It is forcing the EU to import North American shale gas expertise, technology, and equipment, as well as to fast-track commitments for the rapid introduction of a U.S.-based LNG flow.
First, it was cross-border politics.
Then it was a continent-wide brutal cold snap.
Both events have reminded Europe that it requires energy alternatives.
And U.S. companies, and investors like us, are likely to benefit from both.
Actually, there may be one more beneficiary, back in the deep freeze…
Even since Vladimir Putin surprised nobody by announcing his candidacy for another stint as Russian president, he has been hit by widening protests.
A huge rally is planned this weekend in Moscow against Putin. Marina's sister called last night to say the cold weather will deepen over the weekend in the city and it could cut down the numbers rallying.
But don't get your hopes up, Vladimir. The freezer environment is not likely to remain all the way to Election Day. Nobody could be that lucky.