Energy Transition

5 things you should know about Europe’s energy crisis

Europe's energy crisis is growing.

Europe's energy crisis is growing. Image: KWON JUNHO/Unsplash

Sean Fleming
Senior Writer, Formative Content
Share:
Our Impact
What's the World Economic Forum doing to accelerate action on Energy Transition?
The Big Picture
Explore and monitor how SDG 07: Affordable and Clean Energy is affecting economies, industries and global issues
A hand holding a looking glass by a lake
Crowdsource Innovation
Get involved with our crowdsourced digital platform to deliver impact at scale
Stay up to date:

SDG 07: Affordable and Clean Energy

Listen to the article

  • Demand for gas is rising as economic activity recovers from the pandemic.
  • But supplies are limited and prices are being pushed ever higher.
  • Gas can help to decarbonize electricity but it is also a source of emissions.

Europeans are bracing themselves for what could be a long, cold and expensive winter. Rising energy costs are likely to push up fuel bills and increase the price of many other everyday purchases, including food.

Europe's energy crisis

The reasons behind Europe's C are far from straightforward and illustrate how complex and interconnected the global energy market is. Here are five key points to help explain some of the issues fueling the energy crisis.

1. Global demand is recovering strongly

In 2020, demand for natural gas fell by 1.9%. That was partly because of changes in energy use during the worst periods of pandemic disruption. But it was also the result of a mild winter in the northern hemisphere.

In its Global Gas Security Review, the International Energy Agency (IEA) says gas demand is likely to rebound by 3.6% across 2021. If left unchecked, by 2024 global gas consumption could have grown 7% higher than pre-pandemic levels.

Although gas demand growth is expected to slow - despite a switch from coal to gas - the IEA says governments may need to legislate to ensure gas-related emissions growth does not become a problem. “More ambitious policies are needed to shift to a net-zero path,” the organization says.

Have you read?
Global natural gas demand by region, 2008-2024
Gas demand is expected to fully recover in 2021 from its drop in 2020. Image: IEA

2. Europe is reliant on gas imports

European gas production is in decline. Several North Sea gas deposits are running dry, as are a number of gas fields in the Netherlands, such as Groningen which is due to close in mid-2022.

This leaves Europe increasingly dependent on gas imports, primarily from Russia and Norway.

Discover

What's the World Economic Forum doing about the transition to clean energy?

The IEA has called for Russia to send more gas to Europe to help alleviate the crisis, with concerns being raised that Russian-controlled underground gas storage facilities in Europe are stocked lower than in previous years.

“Based on the available information, Russia is fulfilling its long-term contracts with European counterparts – but its exports to Europe are down from their 2019 level. The IEA believes that Russia could do more to increase gas availability to Europe and ensure storage is filled to adequate levels in preparation for the coming winter heating season. This is also an opportunity for Russia to underscore its credentials as a reliable supplier to the European market,” the IEA said.

Global natural gas demand by region, 2008-2024
Forecasts predict a modest growth in gas production Image: IEA

3. Prices are high and could go higher

There has been a 600% increase in European gas prices so far in 2021.

At one point in early October there was a 37% spike in UK wholesale gas prices in just 24 hours. Surging prices prompted a lobby group representing steel, chemical and fertilizer businesses to call on the UK government to provide help against spiralling costs.

The price of wholesale gas has caused several smaller energy providers in the UK market to collapse, and has halted production in some industries. The UK’s Secretary of State for Business, Energy and Industrial Strategy, Kwasi Kwarteng, said: "Our exposure to volatile global gas prices underscores the importance of our plan to build a strong, home-grown renewable energy sector to further reduce our reliance on fossil fuels."

Change in global energy prices.
Global energy prices are heading up Image: Fortune/Bloomberg/Bank of America

4. Winter is coming – again

In the northern hemisphere the start of 2021 was punctuated by a series of very cold extreme weather events. Swathes of the US were affected by a polar vortex that brought snow, ice and freezing temperatures as far south as Texas.

Another very cold northern winter would put additional pressure on a gas system that is already stretched and struggling.

Responding to rising demand during cold weather won’t only be challenged by low gas stocks. Chartering ships to transport LNG around the world has been affected by a lack of shipping capacity, making responses to spikes in demand both difficult and expensive. “Daily spot LNG vessel charter rates have spiked above $100,000 in each of the last three northern hemisphere winters,” the IEA says. “And hit an all time high of well above $200,000 during the unexpected cold spell in northeast Asia in January 2021 – amid physical shortages of available shipping capacity.”

Winter land surface temperatures compared to the 20th century average.
Winters have been getting warmer on average – but extreme cold snaps are also present. Image: NOAA

5. The energy transition: it’s complicated

Gas burns cleaner than oil or coal, and is used widely as a substitute for both in the production of electricity. Although it is playing a role in helping decarbonize electricity generation, gas is still a source of greenhouse gas (GHG) emissions.

The International Energy Agency (IEA) describes gas as: “A major source of emissions that needs to be reduced – especially in mature markets where much of the growth and substitution potential has already been tapped.”

Natural gas is predominantly made up of methane, which is a strong GHG. The US Energy Information Administration says that almost one-third of methane emissions are caused by “natural gas and petroleum systems and from abandoned oil and natural gas wells.”

Although the overall increase in global demand for gas between 2020 and 2024 is expected to be “rather modest”, the IEA says, it will be too high to meet key environmental objectives.

The IEA forecasts a 9% increase in annual gas demand between 2020 and 2024, significantly higher than the demand growth that would need to be maintained to stay in line with the target of net-zero emissions by 2070.

Decarbonizing the gas system will need to be a priority to hit net zero emissions targets by 2050, the IEA says, involving the widespread use of low-carbon gases: “This deployment must be supported by policies enacted in the short to medium term to prepare for such a massive transition for gas systems and industry. In this regard, policy makers should take into consideration new security of supply challenges that are likely to emerge in this transition.”

Loading...
Don't miss any update on this topic

Create a free account and access your personalized content collection with our latest publications and analyses.

Sign up for free

License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
Energy TransitionHealth and Healthcare Systems
Share:
World Economic Forum logo
Global Agenda

The Agenda Weekly

A weekly update of the most important issues driving the global agenda

Subscribe today

You can unsubscribe at any time using the link in our emails. For more details, review our privacy policy.

Why the energy transition needs 'bridge' solutions

Tarek Sultan

April 24, 2024

About Us

Events

Media

Partners & Members

  • Join Us

Language Editions

Privacy Policy & Terms of Service

© 2024 World Economic Forum