In the context of a sharp decline in fuel supplies to the US and Europe due to the conflict in Ukraine and Russia’s reduction in gas supply to Europe, many countries have been grappling with an energy crisis that has been having strong impact on the economies.
Gas prices in the US rose earlier this year but have been exacerbated with the conflict in Ukraine disrupting global energy supplies. Energy prices, led by gas, rose 5% between May and April alone. Meanwhile, Europe's gas storage is running out. Stocks in Europe's underground gas storage have dropped for the first time since mid-April. According to the latest data, the gas reserves of the “old continent” have decreased by 1 percent. The decline in natural gas imports from Russia has forced Europe to use gas reserves, which had been accumulated for consumption during the peak of the coming winter.
Many countries, which have consumed a lot of fuel, have used their full capacity to ensure sufficient energy supplies. US President Joe Biden has called on all global energy suppliers, including OPEC and domestic oil and gas producers, to increase production. Biden has recently sent a letter to the executives of oil corporations, urging them to work with the government to solve the problem of price increases. President Biden warned refiners the administration is ready to use emergency authorities to increase refinery capacity and output. This is the latest effort by the President Joe Biden’s administration as gas prices hit records, averaging 5 USD for a gallon of gasoline.
In Europe, the Austrian government announced that it would reopen a mothballed coal power station to meet domestic energy demands. The decision was made after a government meeting focusing on the response to the energy crisis so that electricity could be generated from coal if required in an emergency. Austrian Chancellor Karl Nehammer said the government's first goal is to secure energy supplies as 80 percent of Austria's gas supply comes from Russia. Austria is looking to replace supplies from Russia, while also increasing gas storage. As of mid-June, Austria has stored about 39 percent of its electricity production.
Germany also announced that it would take emergency measures to make up the shortfall caused by reduced supplies from Russia. The country will increase coal use. Germany’s Economy Ministry stressed that less gas must be used to generate electricity. Coal-fired power plants will be used instead. German Chancellor Olaf Scholz admitted that the mistake of Germany's economic policy in recent years was to rely too much on energy supplies from Russia without building the necessary infrastructure to quickly change direction in the event of a crisis.
Meanwhile, the Italian employer’s association Confindustria has forecast that energy bills in Italy will increase by about 5.7-6.8 billion EUR per month and about 61-81 billion EUR per year. According to the latest data, the average retail price of petrol in Italy has increased to more than 2 EUR per litre. Russia’s power group Gazprom recently informed its Italian partner Eni of the 15 percent reduction of gas supplies. Meanwhile, Eni said it will receive only 65 percent of the required gas volume per day from Gazprom. Italy has diversified its suppliers from other countries such as Algeria, Angola, Congo, Libya, Egypt, Israel and Mozambique.
To promptly respond to the growing energy crisis, the Australian Energy Market Operator (AEMO) has suspended some domestic spot electricity markets. This was an unprecedented step by the AEMO, allowing it to take over the National Electricity Market (NEM), thereby having the right to set wholesale electricity prices in all areas where the NEM operates as well as controlling all power plants to ensure maintaining power supply for businesses and households.
Fuel demand is becoming more urgent than ever, but the current efforts of governments are only a temporary measure to quench the “thirst” for energy supplies.
