This winter, Europe may be facing a crisis without any clear solution.
Right now, the sobering truth is that the future of Europe hinges on the weather. It seems absurd. But whether the winter ahead is cold or warm will determine if Europe gets through the next six months without major economic, political, and social stress.
We are in this situation because, thanks to the clash with Russia over Ukraine, Europe has lost roughly a third of its regular gas supply. Much of Europe, particularly in the former Soviet bloc, relied on Russian gas for electricity generation, home heating, cooking, and industrial purposes. Germany and Italy, the largest and third-largest economies in the Eurozone, were also heavily dependent on Russian gas.
Since the spring, as the scale of the conflict became clear, Europe has been bracing for the worst. While buying as much Russian gas as it can, Europe has been scrambling to sign new gas deals and make up the impending shortfall by buying up cargos of liquefied natural gas, or LNG. Over the summer, as Russia’s situation became more dire, deliveries of Russian gas slowed to a fraction of their normal level. Europe’s purchasing went into overdrive, pushing gas prices to extraordinary levels—equivalent to roughly $400 per barrel of oil or more. As a result, the gas storage facilities are now full. Gas prices, at least for the next few months, have plunged. There is simply nowhere to put more of the stuff. It’s now the daily charges for LNG tankers that have gone through the roof, as shippers wait offshore for European demand to return. It is only a matter of time. The gas storage facilities are sufficient to cover no more than a few months. Gas prices for next year and for the foreseeable future remain severely elevated—in the $200-per-barrel range, around 8 times their precrisis levels. With no prospect of a resumption of Russian gas deliveries in sight, the outlook is grim—unless, that is, the weather stays warm.