The government or Putin? Here's the answer to the question of who is to blame for expensive energy and gas
A lot of people in my neighborhood are asking about the energy, gas and economy. I say up front that I don't want to get completely involved in politics. I just want to summarise the macroeconomic causes and effects of the situation we are in. Because I believe that is the best thing I can do at the moment. Let's get on with it.
Let's take a look at what is currently causing the most pressing problems, which are expensive energy and fear of gas shortages for the winter months. There are several factors.
Causes of expensive electricity
Of course, Russia's pressure - the halting of electricity supplies and the fear this has caused in the market - has had an impact on the price of electricity.
But what is less "visible" is the shutdown of nuclear power plants in France. Unlike in Germany, this is not an environmental initiative. It was simply caused by the drought. Drought means reduced river levels, which are often used to cool nuclear power plants. Nuclear fission cannot be asked to stop generating heat for a while because there is not enough water flowing at the moment. In that case, the reactor simply has to be hard stopped and shut down. Otherwise, overheating would occur and a really big disaster would be imminent.
The drought also affects shipping on the Rhine, for example, which prevents some of the coal supply for coal-fired power stations.
It is also significant that, compared with the rest of the world, Europe already had more expensive electricity at the end of 2021, before any conflict and drought were known.
What about the future?
Supply and demand are still running and the basic principles of the free market will not change. Precisely because electricity has been expensive to sell here (and sold well) we can expect to see efforts by all those who export electricity to get it to Europe. simply because they know they can sell it here at the best price.
The same is true with gas. We used to buy it from Russia, so there was no reason for other exporters to get it here because they knew no one would buy gas that was more expensive (if only because of the costs associated with transportation).
On the other hand - precisely because of the supply/demand equation that is still in place - there is now less demand at a high price because it is not worthwhile for a large number of companies to continue operating. Similarly, households are being cut back. It is necessary to wait to see where the equilibrium is established.
Furthermore, it is to be expected that there will be a major shake-up in the greenback. Or, more generally, in the view of ecology, which is likely to go by the wayside at the moment. It is more important to simply put out the fire that is currently raging on our roof and not the bigger fire in the next town.
Of course, I don't have a crystal ball, so I don't know what the cost will be. I'm just including factors that will probably affect the price.
Here's another opinion:
Recent data showed that natural gas storage tanks were filling up faster than expected ahead of the winter peak season. However, despite these market interventions, prices will remain elevated due to tightening supplies. Russia's Gazprom has cancelled its plan to resume flows through the Nord Stream pipeline and closed it indefinitely, citing maintenance requirements, deepening the energy crisis in Europe. European countries are now looking for alternatives to Russian gas supplies, including liquefied natural gas from the US.
Understandably, therefore, the price of gas is mainly affected by supply constraints from Russia. Current efforts are expected to be mainly in building more LNG terminals. There are now 256 of these, with plans for 115 more. But this is a question for the longer term and will certainly not be resolved by this winter.
Then again, the price of gas also has an extreme impact on the price of electricity.
It is a statement of fact that the government was unfortunately not prepared for this situation and we are dealing with the problem 'with a cross on our fingers'. However, we are far from being the only ones in Europe, and this is probably not a situation that tops the list of probabilities.
It's hard to say what exactly has caused the staggering increase in electricity and gas prices. It is an ugly combination of multiple factors and steps.
What is certain is that this situation will have economic consequences, such as a new search for a balance of supply and demand between Europe and energy suppliers. Also, the plan to decommission 'non-environmental' sources is likely to be overhauled, which could have a further strong impact on the economy in the future. The construction of LNG terminals is also likely to be accelerated and the strengthening of the LNG network accelerated.
What other economic impacts do you think this situation will have? What is your opinion? Feel free to share in the comments!
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Disclaimer: This is in no way an investment recommendation. This is purely my summary and analysis based on data from the internet and a few other analyses. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.