The war in Ukraine has pushed up energy prices due to the continent’s dependence on Russian fuel at a time when the market was already highly stressed by imbalances between supply and demand due to the pandemic. The crisis has had a direct impact on companies (with production stops) and on families (who have seen how their gas, electricity and petrol bills have multiplied).
Europe lacks alternatives to Russian gas and oil in the short term, but it does have medium-term options that, according to experts, include increasing storage to guarantee supply next winter; increase imports of liquefied natural gas (LNG) from the United States, Australia and Qatar; finish the Midcat gas pipeline that should connect Catalonia with France to transport LNG regasified in Spain to the continent; reduce the consumption; and look for alternative oil suppliers such as Saudi Arabia. In the long term, the solution lies in the deployment of the Spanish renewable park, which the bureaucracy keeps stuck. 10% of the gas and 4% of the oil consumed in Spain come from Russia. European dependence is greater, since 40% of the gas and 25% of the oil come from Russian deposits.
This situation has caused large energy-consuming industries such as Acerinox, ArcelorMittal, Celsa, Megasa, Ferroglobe and Siderúrgica Balboa to have had to stop some of their facilities and others have already begun to reduce their production, as is the case of Asturiana del Zinc, as reported this week by the Association of Companies with Large Energy Consumption (AEGE). For these companies, the energy bill accounts for around 40% of their costs, so “if the situation does not straighten out, many will be forced to launch temporary employment regulation files (erte),” they announce.
SMEs and domestic
The situation will be similar in the case of SMEs and domestic consumers, benefiting from the regulated price (PVPC) or with a contract in the free market but indexed to the ‘pool’, who will see their next electricity bill skyrocket, but also the receipt of the gas and fuels, if the Government does not remedy it first. In the case of electricity, the solution seems easier because its price is ‘artificially’ affected by the quoted price of natural gas. After the European Council last Friday, the Vice President for the Ecological Transition, Theresa Riveraassured this newspaper that the European Union intends, in one way or another, to decouple the electricity tariff from the cost of gas, although he specified that it is a transitory measure pending the approval of the structural reform of the market in May energetic.
Brussels outlined this week its roadmap to deal with the crisis that includes the diversification of supply, coordination between States so that gas reserves are at 90% by October 1, the adoption of renewables to replace gas and the attempt to reduce the impact of energy prices on consumers, within the framework of the plan called REPowerEU. The International Energy Agency (IEA) calculates that in a year Europe could reduce its dependence by more than a third with measures such as not signing more supply contracts with Russia, promoting renewables and even asking citizens to lower the heating ( as the High Representative of the Union for Foreign Affairs and Security Policy did this week, Joseph Borrell). “Reducing the thermostat by one degree reduces gas consumption by 10,000 million cubic meters a year,” said the president of the IEA, fatith birol.
against foot
The Socialist MEP Nicholas Gonzalez Casares (member of the Industry, Research and Energy Committee) explains that the Ukrainian invasion has caught Europe off guard because gas storage was at a minimum and the countries have not been able to “draw” reserves. “Storage is so low because we were coming out of a pandemic where consumption fell and there was a reduction in supply. The price fell a lot (the megawatt hour of gas was 20 euros two years ago compared to 200 euros now) and producers were not compensated for extracting fuel. Coming out of the pandemic, the market was unbalanced. A second reason was how Russia behaved since the end of the summer. It exported much less gas to Europe than in previous winters. Added to this was a reduction of Norwegian gas for operational reasons. In addition, China competed for liquefied natural gas. It paid premium prices and caused the diversion of methane tankers to Asia,” says Nicholas Gonzalez. To avoid reproducing this situation, “the European Commission has proposed that by October 1 gas storage tanks be at 90%,” he adds.
Christian Castillo, professor of Business Studies and Economics at the UOC, warns that getting Europe’s gas deposits to be full next winter will depend on Russia. “We take it for granted that Russia is not going to cut off the gas supply. If it doesn’t cut off the supply, it can be achieved. Russia threatens to cut it off, but it is on the verge of bankruptcy due to the blockade and depends on gas revenues, although It’s unpredictable,” he stresses.
France wants to relaunch its nuclear production, but it is an option that the Spanish employers assure that it does not contemplate since it is focused on complying with the scheduled closure of the plants that starts in 2027 and ends in 2035. Ignatius Araluce, president of Foro Nuclear, points out that in the last decade nuclear energy has been the only technology that has produced more than 20% of electricity. “It is a technology that does not emit CO2 and, therefore, is essential for achieving the climate objectives to which Spain has committed itself by ratifying international agreements. In fact, last year the seven nuclear reactors avoided the emission of more than 20 million tons of CO2 into the atmosphere -equivalent to the emissions of 75% of the Spanish car park- and produced more than 30% of emissions-free electricity”, points out the president of the employers’ association.
Nuclear is not a long-term alternative because it lacks profitability. “Nuclear power plants are economically unfeasible. They are investments for 20 years and then you depend on uranium. Are you going to buy that uranium from Russia? I don’t think France will end up deploying more nuclear power plants as it has announced. A plant was going to be built in the United Kingdom in ten years, fifteen and the cost has multiplied by three”, assures Juan Antonio Martinezenergy consultant of Grupo ASE.
Experts agree that an increase in gas imports from the US, Australia and Qatar is not an option in the short term because countries such as Germany lack regasification capacity. “Right now we are stuck. Gas production is very limited. There is no short-term alternative to Russian gas. It cannot be fixed in the short term because it requires large capital investments in cycles that take four to five years. can deceive people by saying that there is an alternative. It is false”, warns the consultant.
Spain could be the energy mainstay of Europe but connections with the rest of the continent are failing. “We could become a supplier of gas to Europe because we have 7 regasification plants, but we lack good connections. Spain is the European country with the largest gas storage capacity. We can store 3,000 million cubic meters compared to the United Kingdom, which can store 2,000 million It would be technically feasible to send gas to Europe through a planned connection between Catalonia and France (Midcat gas pipeline) which is halfway done Spain could supply Europe with 40% of the gas it needs It would be the fastest option to supply the supply gas from Russia,” says Manuel Alcazarresearcher at the Institute of Energy Engineering of the Polytechnic University of Valencia and professor of Electrical Engineering.
Difficult solution of crude oil
In the case of oil, the short-term solution is not easy either at a time when a liter of gasoline has broken the barrier of two euros in Spain. One of the surprising situations, according to the experts, has been the trip of a high-level delegation of US officials to Caracas to meet with members of the Government of Nicholas Maduro with the aim of buying Venezuelan oil. “The purpose of the trip (to Venezuela) was to discuss different issues, among them, of course, energy security,” confessed the spokeswoman for the US government. Jen Psaki.
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Another solution is to release part of the strategic reserves. The International Energy Agency agreed in early March to release 60 million barrels of oil from the reserves of all its members to ensure that there will be no supply problems. In the EU, the situation is complex. “Europe is aware that it has to find an alternative to Russia. The US and the UK can do without Russian fuel, but Europe has it more complicated. The US only has a 3% dependence on Russian oil and 7% on gas”, points out Christian Castillo. The investigator Manuel Alcazar acknowledges: “The price would fall if OPEC agrees to an increase in production.” A situation that is not contemplated at the moment and that leads Europe to hold its breath.
The field falters: lack of cereal and plenty of fruit
The war has broken the energy market but there are others, such as the food market, which are also undergoing alterations. The closure of the “breadbasket of Europe” that was Ukraine is emptying the silos of cereals such as corn, sunflower cake or wheat, bases of the diet of Spanish cattle, and is shooting up their price. Ukraine was the main supplier and the alternative markets (Romania, Hungary and Slovakia) have stopped exporting to stockpile.
According to the Spanish Confederation of Manufacturers of Compound Food for Animals there are only reserves for 5 weeks, which has led the Ministry of Agriculture to ask the EU to authorize the import of transgenic cereals not authorized until now by Brussels. In addition, the sector fears that third countries that used to sell fruit to Russia, such as Morocco, Turkey and Egypt, will flood the old continent with their cheaper product and cause prices to collapse. | M. Lopez Belarte