Written by 7:40 pm EU Investment

The great European energy crisis isn’t over yet – and it won’t end until our leaders take action

So far, so good. Thanks to a mild autumn and a lot of government largesse, Europe has weathered the gas crisis in tolerable shape. The streets have dimmed but not gone dark, vulnerable residents have not frozen to death en masse, and there aren’t yet riots. The price of gas has even fallen to relatively affordable levels, alleviating the pressure on government finances. In 2022, Putin called the West’s bluff and lost. The alliance against him is holding, despite the cost.

The great energy crisis, however, is not over yet. For one thing, there is plenty of economic damage unfolding even with prices suppressed by governments. The most visible are the small takeaways and pubs closing down because they can’t pay the bills even with subsidies – and that was before the recent cold snap. Less visible, but more existential for our future, is the mass mothballing of factories across the Continent to prioritise household energy supply. It’s all very well to write off this winter. But what about next? And the one after? When does temporary mothballing turn into Continent-wide deindustrialisation?

It would be heartening to think that this year had finally awoken our old survival instinct. Europe has shut down its heavy industry and even so came perilously close to household energy rationing. To fill the gap left by Russian gas, it has burnt more coal. There go our precious emissions targets.

The lesson from all of this ought to be clear: our energy supply is too fragile. Lest we forget, gas prices were soaring long before Putin lifted a finger. Why? Because we have systematically discouraged investment in stable energy production. Renewables, successful as they are, can’t fill the gap on cloudy, windless days. In the long term, nuclear power might plug it. But in the medium term, there is only one solution: increase gas supply. The good news is that burning more gas doesn’t even have to harm the environment. By displacing coal, the use of which has grown 27 per cent since 2020, it can actually reduce emissions.

What a godsend. European policymakers would, you’d think, be going hell-for-leather to sign new gas contracts abroad, ramp up domestic production, reward investment, and attract new supplies to our shores. But this is not what they are doing.

They are, instead, continuing to live in fairyland. In the UK, government penny-pinching saw our biggest gas storage facility reopen at just a fraction of its former capacity. A pointless Tory leadership contest avoided the issue all summer, when we ought to have been implementing an emergency buildings insulation scheme. And the current Government has now killed off any prospect of raising production in the North Sea by implementing an utterly cack-handed windfall tax (special windfall taxes can work alongside more investment – just ask Norway – but not in the way ours was designed).

It doesn’t get any better on the Continent. In the Netherlands, the government continued with plans to wind up production at one of Europe’s last major gas fields because the locals are worried about “earthquakes”. Bans on shale drilling remain widespread. And after 191 working group meetings, the EU has just agreed the most fatuous policy of all: a cap on wholesale gas prices. This will either achieve nothing (since it has limited support even in Brussels) or will actually put off international gas shipments from coming to Europe, exacerbating the shortage. The uncertainty is already doing damage. ICE, which runs Europe’s biggest gas trading exchange, has warned of instability in gas markets.

Even where European leaders are moving in the right direction on energy, they are going at a snail’s pace, their policies riddled with contradictions. In Senegal, for example, Germany has pledged to help develop offshore gas reserves, but won’t finance the project because that would contravene green policy. New gas deals signed with Qatar and US producers are good news, but not nearly enough, limited by Europe’s emissions targets. Germany’s decision to prolong the life of its three nuclear power plants is welcome, but extends only until April.

In Brussels, the EU has unveiled a wildly ambitious plan to build more renewables and develop various green gas technologies, but without any accompanying agreement to streamline the heinous planning and regulatory process involved in doing so. Yet all policymakers seem to be under the continuing delusion that, by 2030, our problems will be solved by green energy production. If they’re wrong, we will end up paying sky-high prices and burning ever-more coal, because it’s the only back-up fuel available.

Meanwhile, Asia is stirring. China is finally shaking off its zero Covid policy and prioritising growth. The rest of Asia is clear-eyed on the need for fresh gas supplies for another generation and is prepared to sign long-term contracts to secure it. If the weather gets cold over the coming months, Europe’s gas storage will start to drain away and, without the option of filling the tanks with Russian supply as we did last summer, we’ll go into next autumn running on empty. Before that, prices will soar again. The UK position is particularly precarious because, without much storage of our own, we rely on the Continent’s stockpile to get us through winter. All we need is simultaneous cold snaps in Asia and Europe and things start to look very ugly indeed – again.

For those who claim that the answer to our problems is more renewable production, I suggest looking up the UK’s energy mix on December 12, the day when even the South was blanked by a gorgeous carpet of snow. With little sunlight and even less wind, the renewable contribution to Britain’s energy production fell to 2 per cent. Oil and gas contributed 85 per cent. Despite these horrid fossil fuels, the UK mix was still much friendlier to the planet than Germany’s, where on the same day nearly half of energy demand was met by burning coal.

It may already be too late to avert another crisis next winter, but it isn’t too late to fix the problem beyond that. If only Europe’s leaders would recognise the need to face down the green purists and encourage global gas production on a much greater scale, we could claw our way back to energy security and reverse the damaging growth of coal at the same time. It wouldn’t hurt, in the meantime, to launch a major energy efficiency drive.

On the face of it, the West is ending 2022 on a high, having been reinvigorated by the bravery and success of Ukraine. But we need to ask how much longer state spending can mask the reality of Europe’s deteriorating economies. Our approach to net zero isn’t working. It has left us burning more coal and paying through the nose to do so. Until energy security moves back to the heart of European policymaking (including British), our future prosperity and any prospect of a decisive victory in Ukraine will be hanging in the balance.

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