The volumes of produced and consumed gas are long-term risks, associated with renewable energy (in Germany, renewable energy consumption decreased by 6 percent in 2021) - we can call them “renewable swans”. We can recall the lack of water for hydroelectric power plants (Brazil and China in 2021), the lack of wind and sun in Western Europe (2021), and the excess heat in Europe in the summer of 2022. Together, they increased the load on the energy systems for cooling, heating, and the replacement of renewable energy sources. In the year of the Glasgow Climate Meeting, there was a first-ever decline in energy production using renewable energy sources — by the summer of 2021. This has raised electricity tariffs, raised demand for gas in the EU, and — this is terrible — caused an increase in the use of coal. The risks associated with renewable energy are new, but easily solved with the help of gas, when it is inexpensive and politically acceptable. Otherwise countries must resort to coal, nuclear power, high prices and saving water when brushing their teeth...
The economic recovery in the world in 2021 turned out to be somewhat stronger than expected: 6.1% GDP growth after a 3.1% fall. Everything was going well in China and the US, although in the Eurozone, 5.3% growth did not compensate for the fall of 6.4% in 2020, which unnerved business and politicians. Of course, this growth has generated significant demand for commodities and energy products. But there was no misfortune — happiness helped! The rise in personal commodity consumption (services are still clamped), in particular the growth in the use of motor fuels, metals and the rest of the raw materials. Prices have been rising throughout 2021, in particular for gas in the EU, as LNG from the US and Qatar has largely gone to Asia as of August. So the so-called “boom risk” for energy prices has taken a political significance. For the first time, perhaps, in the history of the business cycle, the growth of world GDP by six percent (!) was declared an unprecedented energy crisis.
This is still a crisis of perception of the world - a risk that is difficult to foresee. What was easy to foresee and was predicted was the low capital investment in the world in oil and gas production, since two strong factors, a cyclical and a structural one, coincided. During a crisis, investment in capacity falls the most and for longer than consumer demand. Investments in oil and gas production by large Western companies peaked back in 2015, and in 2020 they fell very sharply and did not grow in 2021; they are estimated for 2022-2023 as very “flat”. This is normal for the business cycle, but it is even more natural for a period of structural shifts. Large oil and gas companies in the West receive huge profits due to rising prices, but they use them in the interests of shareholders — dividends and the redemption of company debts. Mining investment has remained flat, so sooner or later consumer prices are bound to rise.
Was there a crisis in the energy sector in 2021, and in what sense? The increase in primary energy consumption in the world in 2021 amounted to 5.8%. No one froze and nothing stopped, but the nerves of the politicians were shattered. However, it became expensive after a long period of consumer price stability and low gas prices, especially in 2020. Oil consumption in the world in 2021 increased 6% (it had fallen by 9.1% in 2020). But gas consumption in the world in 2020 fell only by 1.6%, and increased by 5.3% in 2021. In the EU, the decline was deeper (-2.9%), and the growth was not so noticeable (4.6%). Where did the gas go? For example, China increased consumption in 2010—2019 by an average of 13% per year, by 9.2% in 2020 and by 12.8% in 2021. There’s nothing mysterious or conspiratorial. Perhaps we ‘re observing a probably not new, but unexpectedly strong risk of hysteria about the usual work of markets during a recovery after a recession.
The risks facing gas suppliers is understandable — at high prices, importers do not like them. The exception is the United States with its $150 per 1,000 cubic meters of gas on the domestic market and delivery costs in the region of $300-350. Therefore, their exports first went to Asia for $1,000. An export price to the EU of $500 in August 2021, and for $1,000 in the EU in winter, exports from the United States in the winter of 2022, well, $2000 in early August 2022. The export price of gas from Gazprom to the EU in 2020 was about $140 per 1,000 cubic meters, but that did not evoke much sympathy, nor did 40 years of supplying gas to the EU, on which continental prosperity was largely based.
The risk facing gas importers in the context of rising prices, like in 2010 or 2021, is understandable — large energy intermediaries find themselves between their internal tariffs for households and businesses (historically established, low by the end of 2020) and rapidly rising supply prices. But this is a financial risk, which is solved either by the financial sector or by the state, depending on the level of the country's welfare and legal features. Ultimately, this risk is passed on to the consumer. This is where differences begin, and not only between developed countries and countries that are not very developed. The well-to-do strata easily endures the rise in prices for motor fuel, gas and electricity, while the poor have a hard time. Here, of course, there are social risks.
A difficult situation is developing for the EU business sector in gas chemistry and nitrogen fertilizers. Global competition is a merciless business, and with prices over $500 in the fall of 2021, gas consumption in EU industry was already falling. The gain, of course, is with American suppliers, bearing in mind the large gap in the price of gas between costs in the United States and elsewhere. Now — with prices of 1,000—2,000 dollars — there is another question about the cost of filling underground gas storage tanks (UGS) in the EU. In practice, these billions of cubic meters injected into UGSs are priced above historical levels, so that they pass on current import prices to the costs of businesses and families in the winter. What is the “scope of the question”? The EU consumes about 400 billion cubic meters per year, and before the winter season, UGS facilities usually accumulate about 100 billion. The low level of accumulated stocks in the fall of 2021 caused panic and speculative price increases (from $500 to $1,000 per thousand cubic meters). However, in winter in Europe, the cold was ordinary, and nothing dramatic happened in real life. No one was left without heat, but gas became more expensive, “like in Asia”, both for residents and for industry. The memory of the price of $140 in 2020 was certainly an important factor, but cheap gas now is not an EU privilege, but a rare temporary combination of factors, in particular Russian supplies. Nothing lasts forever in a pipe.
The price situation of 2021 has already caused a partial return to the use of coal in thermal power plants in the EU. The risk here lies in the loss of time to prevent climate warming by the end of the century. Greens and meteorologists already fear that the decline in greenhouse gas emissions in 2015-2019 was not going fast enough. 2020 gave the “coronavirus illusion” — but now there are several processes that make the situation even worse. First of all, it is, of course, the return of coal, the demand for hydrocarbon fuel, especially in China, but also in the EU. Second, funds seem to be shifting towards adapting energy systems to the sanctions regime, helping the poor, and not to a costly energy transition.