The CEO of Shell says that Europe will face harsh winters for the next ten years as Europe's energy crisis worsens. Fortune. Ben Van Beurden said the energy crisis will likely last for more than one winter and that Europeans will have to get used to energy rationing and attempts at efficiency. Natural gas prices have exploded after Russia responded to sanctions by largely cutting off European access to the fuel. Russia has shut down the Nord Stream 1 pipeline due to maintenance but many believe that the pipeline will not ever start again. Germany managed to almost reach their gas storage target, which caused a small amount of relief but that was short lasting. Countries in Europe are considering price caps and other possible solutions to the crisis.
My Comment:
People are starting to state the obvious, the sanctions against Russia have backfired terribly. The CEO of Shell is right, there is no easy solution for this problem and there are no good options. And it's going to have huge repercussions for both the European and global economy.
The easiest solution would to simply give into Russia by lifting sanctions and ending support to Ukraine. This is the right thing to do so there is essentially no chance of it ever happening. There has been no indication that anyone is even trying to end the war diplomatically and even if the war ends today I doubt any sanctions would be lifted.
And Russia has little incentive to sell gas to Europe. They have found plenty of other customers for their energy and their economy is doing just fine, though lacking western luxury goods. Russia also knows that if they hold out the governments of Europe will fall, and will likely be replaced with new regimes that will be more open to lifting sanctions on Russia, if for no other reason the new regimes will end up being overthrown in turn. Russia knows that it has the advantage here and will try to press it.
The other options aren't good. Short term I don't see Europe doing anything but suffering. There is no alternative natural gas source for them right now. They can buy from other countries but the prices will not be affordable. And the infrastructure is just not there to ship and refine this fuel.
And there aren't any real alternatives to natural gas. The vast majority of homes in Europe are heated with gas and it's not like they can just switch over without a huge investment of money. And other energy sources, most notably nuclear, have been shut down and will take years to start up again. And even hydro power is not going to help given this year's drought and low water levels.
The solution some countries seem to be taking is price controls, which is almost always a bad idea. Doing so almost always causes shortages which is even worse than high prices. At least when prices are high there is fuel to purchase, that might not be the case if price controls are put into place.
All of these solutions are long term and won't do much if anything to help in the winter of 2022. That means people are going to have to make some hard choices about how they spend their money. We have already seen some businesses shut down and some people making choices between energy and food. That is going to get much worse over this winter.
If there is any good news for Americans it's that our energy prices will remain lower than Europe. We have domestic production to help offset the increase of prices and any shortage. And we get most of our energy from other sources that will be more resilient.
The problem is that Europe's economy is going to collapse, not just because of high energy prices but the inevitable disorder that is going to spread from it. That means anyone who trades with Europe is going to have major problems and we do a lot of trade with Europe. Given that this is pretty much entirely the fault of the US government it's what we deserve...
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