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Energy Crisis Looming in the European Deep Freeze

by | published February 10th, 2012

Last week something so rare happened in Rome that it brought the Eternal City to a virtual standstill.

It snowed.

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.

Sincerely,

Kent

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  1. February 10th, 2012 at 14:37 | #1

    GREAT CALL ON “CIE”

    THANKS FOR THE GAINS.

    CHRIS M. ROBERTS
    LIFETIME OXFORD MEMBER

  2. February 10th, 2012 at 14:45 | #2

    Dr. Moors -

    I LOVE your commentaries! Your tongue-in-cheek style really tickles me, and the knowledge you impart in such an enjoyable way is ALWAYS appreciated. I’d venture to say many others feel the same way about your writings.

    Most of your recommended stocks that I’ve bought are doing quite well, even at the modest level of my circumstances. Wish I had more $$ available . . .

    Please don’t change your style! . . . And THANX!

    BTW, this is sent from my NOOK tablet – great gadget!

    Sincerely,
    Chuck Wertalik
    Roanoke VA

  3. Herbert Springman
    February 10th, 2012 at 15:26 | #3

    Any comments on OIL Mar 17 2012 and NOG Jan 19 2013 options?

  4. February 10th, 2012 at 15:31 | #4

    It will be interesting to see how things play out in Russia.

  5. Jeffrey Michel
    February 10th, 2012 at 16:35 | #5

    This is a refreshing commentary on the negligence (to use a mild word) of European energy policy makers in preparing for exceptional weather events, as well as increasingly diminishing water supplies for thermal plant cooling. As long as many top officials are political appointees with insufficient technical or industry background (I will refrain from naming names), the wrong switches may be thrown time and again. Yet as a 40+ year resident of Germany, and energy researcher for more than half that time, I would also welcome a deeper understanding of the situation in Europe by foreign analysts. Certain of Kent’s remarks could therefore benefit from referencing the pertinent data. For instance, German nuclear phase-out is of little significance for the current gas supply situation, because coal and lignite power plants as well as renewable energies (which provide over 20% of total grid electricity) have enough spare capacity to take up the current slack. That reasonably comfortable situation could change by 2020 when the remaining nuclear power plants go off line, but any predictions depend on a number of variables too complex to be condensed into a few sentences. Regarding public opposition to shale gas extraction in Germany, suitable formations are located only in the northeastern part of the country, and they reportedly would constitute at most a three-year national supply if fully exploited. No major energy policy revisions can be expected on that basis. As the richest major country in Europe, Germany can outbid its neighbors for imported fuel, which it may do to avoid political conflicts over domestic alternatives.

  6. jane heller
    February 10th, 2012 at 16:45 | #6

    Mr. Moors, would you talk about the Marcellus shale project and the fact that Ohio is being deluged with PA’s water/chemical sludge from fracking and that Ohio is trying to get it stopped legally. What does that say about the future of fracking across the country?? thank you..

  7. February 10th, 2012 at 18:59 | #7

    Great job as always Dr. Moors, thanks for the continuous education. I would like to hear it first hand so if you need someone to carry your bags around the world, give me a call.

  8. Bernard Durey
    February 10th, 2012 at 19:27 | #8

    Well,here we go again. Another Alberta Clipper so to speak. No not the pipeline that runs from Hardesty,Canada to Superior,Wisconsin and then maybe on to Flanagan,Illinois but the Alberta Clippers which send bone chilling temperatures into the U.S. We have had the experience of both seasonably warm and now a much cooler few days or so in store. They,the Alberta,Clippers seem to have a way of reaching out and making the billfolds,purses,pocket books or whatever terminology you choose to use squeel some. In other words energy usage goes up. Now what these two oppoistes have to do with global warming or global cooling may be unknown. However,over the years I have watched some chemicals be removed from gasoline,agricultural products,maybe even household cleaning products. Does this all play apart in global cooling trends or not. We had the Clean indoor air act and in many cases when outside one doesn’t notice the pollution as much. I spent about one year on the west coast and in a high poluted area. One of the first things I noticed was the burning sensation around the eyes. Once leaving some old friends of mine came to pick me up. We got out of the vehicle early morning in Utah and just the breathing of the air quality was very noticeable. I think we may have cleaner air today with some chemicals already remved. Does that change the global warming trends to more global cooling trends. I am not a rocket scientist but I suspect it may play apart in all of that. during your meetings,etc. you might wish to factor that into the nergy issues of the chemicals that have been removed from certain things like gasoline,agricultural products,cleaning products,etc. Does or has this ahd an impact on our air quality and global warming or global cooling? Once again thank you for your time and have anice trip overseas.

  9. Alexander Makarov
    February 11th, 2012 at 03:06 | #9

    Hi, Kent
    I am calling from Russia to make a few remarks on what you, thinking by inertia in warfare terms, describe as Gas War when it is just a shortage in a severe winter and for such situations greater reserves must be accumulated in the future.
    Your anti-Russian and pro-American gas bias is only natural and surprisingly enough I find it beneficial for my country in the long-term. Cutting raw gas export supply would be only good for us because gas is not sustainable (renewable) and, rather than creating competitive, quality of life and eco-advantages for domestic users, we are handing out this valuable limited energy source to the world without adding value by making it liquid or by other form of processing. In this way we enhance the strength of foreign competition and in the future we must keep more unprocessed gas for ourselves while exporting gas products of smaller volume but greater value, you are perfectly right.
    Mink coat opposition
    I am not exposed to any hardships being a self-made businessman (not a big one), but for me, and I feel for many of my compatriots, the leaders of what sometimes is called Mink Coat Opposition are just laughable. Their greatest concern has been to line their pockets and now overnight they are thirsty for free elections (where they will again fail) and are pregnant with the magic expertise to make the Russians the happiest nation in the world.
    To put it mildly, the West, and Anglo-Saxon nations in particular, are not fond of Putin (many Russians and myself are also critical of the current government) but the silent majority will certainly elect him as the best option from what is available no matter how hard the American Ambassador in Moscow and the US State Department is working to the contrary.
    The reason is simple: the rallying opposition is too small, has no popular leaders (mostly losers) and has nothing to sell to the majority except their urge to buy power as in the supermarket like all the other pleasures of the market economy.

    Looking forward to less divided world,
    Alexander Makarov

  10. Bill Jacobs
    February 11th, 2012 at 14:14 | #10

    As always, very interesting. I am now ready to invest. I truly believe, that Kent has the knowledge, and expertise, to guide me to a prosperous future.

  11. Chris Kulpa
    February 13th, 2012 at 10:54 | #11

    Alexander we might as well not have several choices for president or congress ,they are all worthless and for the most part corrupt,we pick the lesser of two evils.

  12. February 18th, 2012 at 15:52 | #12

    Kent: I wish you would comment about the prospects of small US based corporations marketing LNG gas through the various European chain grocery stores for outdoor grills and as a heat source. I believe EU gas is probabily about 28 USD per 25-pound container, about 10 USD more than the comparative US grocery chain price. I visualize a marketing system incorporated in Ireland for tax savings and reshipping empty containers back to the Marcellus or Utica shale gas formation areas on loads of fabricated steel for our coal mine safety products operations. I would rather you not comment about our EU exports back to the USA. I also see a marketing plan for also marketing LNG gas in several neighboring states near our US steel suppliers as a two-way marketing plan. Leland Waterman

  13. L Jones
    February 26th, 2012 at 11:19 | #13

    Where is GLOBAL Warming when you need it.

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