Europe’s Energy Crisis. A Real Danger

This week the wholesale price of electricity has exceeded the psychological barrier of 200 euros per megawatt hour in most countries of the European Union. Although the daily price currently only affects 15% of the energy sold, since the rest is locked for almost twelve months since last winter at much lower prices, it is a sign of future risk. Thousands of contracts are going to have to be revised with huge price increases in the next three months when the locked contracts expire.

The price of liquefied natural gas (LNG) has soared to $34/mmbtu delivered in December and January. In comparable energy terms it would be about $197 per barrel of oil equivalent, according to Morgan Stanley. Meanwhile, the price of natural gas (NBP) has risen more than 200% in 2021.

The price of CO2 emission rights has increased more than 1,000% since 2017, and more than 200% in 2021. This concept, which is a hidden tax for which the governments of the European Union are going to collect more than 21 billion euros in 2021, adds to the inflationary spike.

These extraordinary tax revenues should be used to mitigate the price increases in consumer bills and avoid an energy crisis in Europe that will sink the recovery.

Two key factors explain the rise in energy prices and in both there is a responsibility of governments: The forced closure of the economy is a key factor to understand the damage generated in the supply chains, and the prohibition of investment in gas resources and abandoning nuclear in Germany has led to a more volatile and expensive energy mix in peak demand periods. This, coupled with a political decision to impose a volatile and intermittent energy mix has left Europe much more dependent and exposed to gas price fluctuations.

Renewable energies work 20% of the time and when they do not work, the only guarantee of supply is to use natural gas, which tends to happen as Asia demand rises and when its price has skyrocketed.

Of course, demand is a very important factor, but we cannot forget that, in natural gas, as in coal, there is no supply problem. There is, in fact, excess capacity.

Under normal circumstances, the price of natural gas and CO2 would have moderated once the base effect dissipated -in June-, but we forget the disastrous impact of monetary and government interventionism.

The rise in CO2 emission rights is directly the fault of the tax voracity of European governments, which have massively limited the supply of these rights so that the price rises. Additionally, the increase of many goods and services is directly due to the massive money supply growth in 2020, well above the demand for money, generating inflation by political decree.

I do not understand how the fiscal voracity of some governments blinds them to two important risks: an energy crisis that leaves businesses and families suffocated by a price increase caused by political decisions, and a massive reaction of the population against environmental policies when they see prices skyrocket due to planning errors (more volatile and intermittent energy mix and dependent on gas) and legislation (charging citizens with the full cost of environmental policies and making those who pollute pay, and those who do not, pay even more ).

The most cautious estimates warn that the energy crisis can leave up to 25% of companies (small and medium enterprises, SMEs) in Europe in bankruptcy – since for them energy is 33% of their costs – and erode up to 1.5% of growth of the eurozone, which is already poor anyhow.

Europe needs a balanced and non-ideological energy mix and a competitive energy transition where it is essential to have nuclear and natural gas as back-up where technology and competition drive competitiveness.

Additionally, the Eurozone cannot create extractive mechanisms that destroy the purchasing power of citizens’ wages and savings and then blame others for inflation.

What Europe needs is more competition, technology and innovation and less interventionism. This energy crisis is not going to be the fault of the market, but of the ideological stubbornness of politicians who ignore economic calculations.

About Daniel Lacalle

Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Author of bestsellers "Life In The Financial Markets" and "The Energy World Is Flat" as well as "Escape From the Central Bank Trap". Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Frequent collaborator with CNBC, Bloomberg, CNN, Hedgeye, Epoch Times, Mises Institute, BBN Times, Wall Street Journal, El Español, A3 Media and 13TV. Holds the CIIA (Certified International Investment Analyst) and masters in Economic Investigation and IESE.

1 thought on “Europe’s Energy Crisis. A Real Danger

  1. COMPASSIONATE EXTINCTION PLAN (CEP)

    1. Every country on the planet is on board with the Injections. Even Sweden. When have all countries aligned on any issue? Never.

    2. Not a single MSM outlet is interviewing any of the expert dissenters – Yeadon, Bridle, Montagnier, Bossche etc… and the mainstream social media platforms are blocking them.

    Why?

    Conventional Oil peaked in 2005 http://www.euanmearns.com/wp-content/uploads/2015/06/C-Cdec141.png

    Shale in 2018.

    According to Rystad, the current resource replacement ratio for conventional resources is only 16 percent. Only 1 barrel out of every 6 consumed is being replaced with new resources
    https://oilprice.com/Energy/Energy-General/The-Biggest-Oil-Gas-Discoveries-Of-2019.html

    Shale binge has spoiled US reserves, top investor warns Financial Times. https://energyskeptic.com/2021/the-end-of-fracked-shale-oil/

    Shale boss says US has passed peak oil | Financial Times https://www.ft.com/content/320d09cb-8f51-4103-87d7-0dd164e1fd25

    THE PERFECT STORM : The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel https://ftalphaville-cdn.ft.com/wp-content/uploads/2013/01/Perfect-Storm-LR.pdf

    “The global economy was facing the worst collapse since the second world war as coronavirus began to strike in March, well before the height of the crisis, according to the latest Brookings-FT tracking index. “The index comes as the IMF prepares to hold virtual spring meetings this week, when it will release forecasts showing the deepest contraction for the global economy since the 1930s great depression. https://www.ft.com/content/9ac5eb8e-4167-4a54-9b39-dab48c29ac6c

    Collapse Imminent: https://thephilosophicalsalon.com/a-self-fulfilling-prophecy-systemic-collapse-and-pandemic-simulation/

    The Illusion of Stability, the Inevitability of Collapse http://charleshughsmith.blogspot.com/2021/09/the-illusion-of-stability-inevitability.html

    Fed is sharply increasing the amount of help it is providing to the financial system https://www.cnbc.com/2019/10/23/fed-repo-overnight-operations-level-to-increase-to-120-billion.html Banks did not trust each other – similar situation when Lehman collapsed

    Oil Gluts – do NOT indicate we have found more oil. We just pumped what’s left too fast.

    Summary In 2019 a second Perfect Storm was approaching – the central banks had been doing ‘whatever it takes’ for over a decade…. Essentially nothing was off the table — throw the kitchen sink at pushing GFC2.0 into the future. In 2019 the guns were blazing but the beast was no longer held at bay…

    What do you do when you are burning far more oil than you discover — and your efforts to offset the impact of expensive to produce oil push you to the edge of the cliff? You can accept your fate and allow the beast to shove you into the abyss…. Or you can take the ‘nuclear option’ and shut down as much of the economy as possible, preserve remaining oil and pump in trillions of dollars of life support to keep the system feebly alive.

    Punchline: The problem global leaders face is that if you unleash the nuclear option without some sort of cover, the sheeple and the markets would be thrown into a panic and you risk blowing things up prematurely. So you need a reason for putting the global economy on ice — one that does not spook the masses – one that is big enough to justify such epic amounts of stimulus and extreme policies — and one that allows you to explain ‘this is just temporary – once this is gone — we will get back to normal’

    A pandemic is the perfect cover.

    End Game – Covid was foisted on us as cover for the response to peak oil (if we don’t slow the burn oil prices go through the roof and we collapse) but it is also being used to convince billions to be Injected. The Injection is meant to cause extremely deadly variants like this .. only worse because we are deploying into a pandemic so everyone dies https://www.pbs.org/newshour/science/tthis-chicken-vaccine-makes-virus-dangerous.

    The reason for this is that 8B people need cheap oil to live. They would starve without it. And 8B people without food would result in epic starvation, violence, rape and cannibalism. Industrial civilization ends soon after peak oil. Unfortunately we also have 4000 spent fuel ponds that will boil off and release toxic substances for centuries. These facilities cannot be controlled with computers and energy. So even the subsistence level humans die as they consume these toxins in the food, air and water.

    The PTB understand all of this and that is WHY every leader is on board with the Injections. There is NO way out of this — so they have decided to mitigate the suffering as much as possible by putting us down and here is the mechanism https://www.geertvandenbossche.org/post/why-the-ongoing-mass-vaccination-experiment-drives-a-rapid-evolutionary-response-of-sars-cov-2.

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