Catherine Clifford writes that Europeans had already been suffering under high energy prices in the months leading up to Russia’s invasion of Ukraine.
Those prices, and others, surged after Russia crossed the Ukrainian border, with international benchmark Brent crude oil breaching the $100 per barrel mark for the first time in 8 years.
Natural gas prices were at least 6.5% higher after the invasion and were up about 2% as of midday Thursday.
And on Tuesday, Germany halted the Nord Stream 2 gas pipeline project, which was intended to double the flow of Russian gas directly to Germany.
Sad to say, but the European Union is heavily dependent on Russian energy sources, which Clifford says is becoming “increasingly unsustainable.”
The EU, however, is reportedly planning energy independence from Russia. That plan was expected to be announced by the European Commission next week.
By Dave Allen for Discount Gold & Silver
Catherine Clifford writes that Europeans had already been suffering under high energy prices in the months leading up to Russia’s invasion of Ukraine.
Those prices, and others, surged after Russia crossed the Ukrainian border, with international benchmark Brent crude oil breaching the $100 per barrel mark for the first time in 8 years.
Natural gas prices were at least 6.5% higher after the invasion and were up about 2% as of midday Thursday.
And on Tuesday, Germany halted the Nord Stream 2 gas pipeline project, which was intended to double the flow of Russian gas directly to Germany.
Sad to say, but the European Union is heavily dependent on Russian energy sources, which Clifford says is becoming “increasingly unsustainable.”
The EU, however, is reportedly planning energy independence from Russia. That plan was expected to be announced by the European Commission next week.
The Roots of Dependency
So, how did the eurozone become so dependent on Russia for its energy supplies?
In the 1960s and 1970s, Europe was supplying about the same amount of natural gas it was using, according to MIT research scientist Tim Schittekatte.
Production of natural gas in Europe decreased, he said, because the North Sea gas fields, which are particularly important sources of natural gas production from the U.K. and the Netherlands, had been depleted.
And later, the Netherlands announced they were completely shutting down their Groningen gas fields because of damage from earthquakes.
At the same time, the EU has been reducing its dependence on coal to reach its climate goal of cutting carbon emissions by at least 55% by 2030 and achieving carbon neutrality by 2050.
Carbon neutrality is a term used to denote zero net emissions of carbon dioxide in the context of carbon-releasing processes associated with transportation, energy production, agriculture and other industries.
Currently, about 20% of EU electricity comes from coal production. Since 2012, the EU has decreased its coal power generation by about a third.
Plus, Germany flatly rejected investments in nuclear energy with its 2011 Atomic Energy Act—a decision made in response to the Fukushima nuclear disaster in 2011.
As a result, only 13% of Europe’s energy now comes from nuclear power.
About 25% of the EU’s energy consumption comes from natural gas. Oil and petroleum (32%), renewable energy and biofuels (18%), and solid fossil fuels (11%) make up the rest.
And according to Clifford, that dependence on natural gas means a dependence on Russia.
EU Largest Natural Gas Importer
Today, the EU is the largest importer of natural gas in the world, with the largest share coming from Russia (41%), Norway (24%) and Algeria (11%) on the northern tip of Africa.
To compare, the vast majority of natural gas consumed in the U.S. is produced in the country—mainly in Texas, Pennsylvania and to a lesser extent Louisiana, Oklahoma and West Virginia; about 98% of our imported natural gas comes from Canada.
(Although the U.S. is now the largest producer of crude oil, it imported about 7.9 million barrels per day in 2020. Of that total, 7% came from Russia. Wonder what we’ll do about that?)
Schittekatte said, “In terms of foreign suppliers, Russian gas was just the cheapest. Rather than diversifying suppliers, routes to import Russian gas were diversified.”
In addition to Russian’s natural gas being the cheapest, the Russian gas reserves are larger than any other nearby sources.
For the former German Democratic Republic (East Germany), Russian gas and oil were the only affordable energy imports.
According to Georg Erdmann of the Berlin University of Technology, “Until today, Russia fulfilled all long-term contracts.... So, the gas industry assumes Russia to be a rather reliable commercial partner.”
The Dependency Has Peaked, But…
Although the EU is highly dependent on Russian natural gas, overall demand for the gas actually peaked over a decade ago.
Since then, Clifford says the EU has been focusing on its buildout of renewable sources. But, of course, it’s not happening fast enough to stop relying on Russia.
That’s partly because the EU’s energy infrastructure isn’t set up to handle the unreliability of renewable energy.
Clifford notes that it’s hard to store renewable energy for times when the sun doesn’t shine and the wind doesn’t blow, which covers a lot of Europe.
Thus, the EU renewable strategy has largely depended on smaller solar installations by consumers.
Schittekatte said, “There is simply not enough grid capacity now to take up more renewables in some parts of Europe—for example, Spain and the Netherlands.”
Also, the permitting process is slow, and in certain cases, there’s plenty of focused and vocal opposition—the so-called NIMBYs.
In some cases, renewable buildout in EU requires nations to cooperate, which causes additional slowdowns as well.
Schittekatte observed, “The bulk of renewable electricity should come from the North Sea via offshore wind.
“But the difficulty with that is that is requires multilateral cooperation — all the North Sea bordering states should ideally work together.” Especially with Russia in that mix, good luck with that.
For the rest of this season’s colder months, Erdmann says Europe has enough energy, with gas storage facilities in Germany 30% full.
But most of that came from a rogue Russia.
What a wild ride for gold and silver yesterday.
Gold sported a range of $64—first rising 3.1% from its 24-hour low of $1,913 at 9pm ET Wednesday to a high of $1,973 at 6am ET Thursday before falling back 3.2% to $1,909 by 9pm ET Thursday.
Silver in fact was even wilder, trading in a range of $1.24—rising 3.8% from its low of $24.65 to its high of $25.58 before moving down 4.8% to $24.34 (same time periods as gold prices).