Europe faces the start of the year 2023 with an optimism that was unthinkable until a few months ago in energy terms.
In light of the latest data on prices, reserves and supply, Vladimir Putin’s dire warnings about the consequences for Europe of adopting sanctions against Russia for invading Ukraine – he said he would turn off the gas tap and the continent would be “frozen”. ”– seem, for now, as inaccurate as his forecast that it would take his armed forces a couple of days to take Kyiv.
Gas prices are now lower than before the start of the war and 80% lower than in August
First discreetly, and then before an audience as massive as the World Economic Forum, community leaders begin to claim victory in the energy war declared by Moscow. “A year ago, Europe had a massive dependency on Russian fuels built up over decades that made us vulnerable to price rises and Putin’s manipulation of the market,” but “in less than a year we have overcome that dependency,” said the president. Tuesday in Davos the President of the European Commission, Ursula von der Leyen. “Our work has paid off,” she added, reaffirming the Western strategy with the war in Ukraine.
beyond that the general winter has not been on the side of the Kremlin, von der Leyen’s optimism is supported by some data. The Twenty-seven, to begin with, have generated twice as much electricity from renewables as a year ago and, in a short period of time, have found alternatives for 80% of the gas they imported from Russia. The EU has reduced its consumption by 20%, which in turn has contributed to the accelerated reduction in prices registered in recent months. In addition, gas prices are now lower than when the war began, recalls Brussels. This month, prices in the futures market are 80% lower than in August 2022, when they reached their peak. And gas reserves are at 83%, a record high for these dates.
“Our work has borne fruit”, congratulates Von der Leyen, who considers the dependence on Russia “overcome”
Is Europe actually winning the energy war against Putin? Or just this first battle? With some caution, the experts consulted, as well as the main analyzes published in recent weeks, share Brussels’ optimism, although they all warn that the EU must continue to take measures and maintain savings policies so as not to have to pay a price again. excessive by the gas supply.
“Vladimir Putin’s blackmail of Europe has undoubtedly failed. The EU has managed to react, adapt and, despite the high cost, be resilient and safeguard energy security,” says Simone Tagliapietra, an analyst at the Bruegel think tank. “Surviving a Russian gas cut of 80% is unprecedented. We see that this year there is already a sharp drop in prices and that they can normalize even if they are still higher than they used to be but without reaching the peaks that were seen in 2022”.
Lower prices, but far from before the pandemic
The latest data from the gas futures market in Amsterdam reflect a sharp drop since last summer to settle this month at 60 euros per kilowatt hour. Although it is far from the 228 in August, the current price level is double what it was before the covid pandemic. And the forecast of energy companies and industry analysts is that gas and electricity rates will take some time to reach less stressful levels. “It may take years for prices to return to levels that consumers are more comfortable with,” Edward Moya, a market analyst at Oanda, told AFP. Part of the energy costs have been cushioned thanks to public support for homes and businesses. Concerned about the bill in the medium term, the EU has recommended that governments focus this support on the most vulnerable sectors. “Developing savings policies and avoiding a price war between European countries will continue to be important in 2023,” warns analyst Lauri Myllyvirta (CREA). Otherwise, in their attempt to get gas, “they will end up in a race financed by public money.”
Tagliapietra downplays the economic cost of the adjustment. “It has, but it’s just the price of not reducing dependence on Russia sooner. What we have paid now is what we did not pay in the past, especially Germany, which has had to rush to find alternatives to guarantee supply.” Once the first blow is taken, the greater cost is absorbed, says Tagliapietra, a professor at the Catholic University of Milan and The Johns Hopkins University.
The easing of tensions in the energy market has effectively given the economy a truce and this week the Eurogroup has confirmed that inflation may have peaked and that the recession will be milder than expected. “The contraction in economic activity late last year may not have been as sharp as we projected,” said European Commission Vice President Valdis Dombrovskis, noting the “well-functioning” sanctions against Russian energy. According to a report by the Center for Research on Energy and Clean Air (CREA), the partial embargo on Russian oil imposed by the EU is costing Russia 160 million euros in daily losses.
Tagliapietra: “The energy war is an opportunity to accelerate the green transition in the EU”
Lauri Myllyvirta, an analyst at this Helsinki-based think tank, is impressed by the EU’s achievements during this first year of war in Ukraine but with reservations. “The gas supply situation in the EU is quite good, much better than anyone expected in a scenario of almost complete closure of Russian supplies. However, the way in which the EU has secured gas has been based on very high prices to encourage and force reductions in consumption and attract the supply of liquefied gas from around the world.
This high price level, warns Myllyvirta, “will continue to be necessary so that demand does not exceed supply in 2023” but, at the same time, the high cost of energy cannot be the only mechanism to encourage energy savings and Governments “must develop adequate policies”. The Russian energy war, concludes Tagliapietra, “is an opportunity for the EU to accelerate the green transition and seek solutions that reduce gas consumption.”