Newsletter Stories

Things Are Unwell Across the Pond As Europe Readies For Wild Winter

energy crisis in Europe

Despite being one of the biggest stories of the year, Russia’s invasion of Ukraine hasn’t got a lot of airtime in recent weeks. Nonetheless, the lackluster coverage from three-letter networks on this side of the Atlantic doesn’t mean the war is over—and nor are its far-reaching effects. 

Global investors have tuned into one of the war’s biggest subplots: the emerging energy crisis unraveling in Europe. It has been suggested since the early days of the war that the conflict would likely challenge Europe’s dependence on Russian oil and natural gas. Those warnings have come to pass—and no clearer are the impacts than in the futures prices.

The price of UK natural gas futures has risen more than 60% month-over-month (MoM), adding to an already monster 338% rise year-over-year (YoY). The rise has been mimicked in a number of other European countries—namely in the price of TTF Gas, which is Europe’s wholesale natural gas price. TTF Gas has risen nearly 40% MoM and more than 450% YoY.

The energy scare has steepened in attack in the last few weeks as Russia’s state-owned energy company, Gazprom, announced maintenance on the Nord Stream pipeline—which supplies natural gas to Europe through Germany. It is expected to be offline for three days, but given that the pipeline has operated at just 20% capacity since June, some analysts are expecting Gazprom to turn off the pipeline.  

What does that mean, practically speaking? Well, it means that Europe and investors are finally clued in: it’s going to be a cold winter (and we all have Russia to thank.) 

  • In the best case scenario, the price of energy will be prohibitively high for many Europeans—who will struggle to make ends meet as inflation rises in many industrialized European economies.
  • In the worst case scenario, there will simply not be enough energy to go around and energy rationing will begin.

 Naturally, that has the makings of something quite dystopian. That reflects in polls of the European public. According to the Morning Consult, 13 of 16 European countries polled saw a decline in consumer confidence in July. Europe’s largest economy, Germany, saw the largest drop in July — Germany’s consumer confidence fell by 9.3% in the index.

And on a more meta level, these contrasting figures make it seem quite likely that Europe’s inflation and growth are heading in opposite directions (and they’re not heading in the directions the continent would want.) That could cause havoc for European operators as the weather turns, and it underlies the case that Europe’s woes could go global.

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