In 2021, an energy crisis of global proportions exploded whose epicenter was Europe. The triggering cause of the crisis was not only the political use of the gas resource by Russia, but upstream there are other problems that have led the EU and individual member states, above all Italy, to this energy turbulence. And if a drop in energy prices is expected in the coming months, a report from Studies and Research Department of Intesa Sanpaolo shows how these will remain above the average between now and 2025.
According to the analyzes of Intesa Sanpaolo economists, assuming that the crisis between Russia and Ukraine does not cause serious interruptions in flows, the real threat remains the price volatility and the main sources of uncertainty i geopolitical risks and the conditions weather.
Therefore, the energy crisis is not a temporary phenomenon, but it is much more complex than one thinks. Understanding the reasons why we have reached such a critical situation in the energy sector is essential to understanding what will happen in the future.
Energy crisis: the causes of a complex phenomenon
The research shows that in 2021 an unprecedented global energy crisis exploded for a whole series of causes: globalization in the gas markets, strong post-pandemic recovery and scarcity of raw materials, geopolitical tensions, climate change, exceptional weather conditions. But to understand what generated the cascade effect, we need to take a step back.
Climate change, renewables and economic recovery
In the continent that has made the abandonment of fossil fuels and the energy transition its priority objective has underestimated the extent of the most harmful effects of the crisis we are experiencing. Increasingly ambitious clean energy transition policies have led to exactly this point, with sky-high energy prices. The race for renewables has led to a reduction in investments, the decommissioning of nuclear power plants and an increase in the import of fossil fuels from other players: primarily from Russia, then from Algeria and Libya.
On the other hand, climate change has also amplified price volatility, with the sixth highest average global surface temperature since global records began in 1880. This has translated into a decrease in average wind speed, with consequences negative for wind farms.
Among climatic events and anomalies in 2021 the Intesa Sanpaolo report highlighted: Europe's 2021 temperature was the ninth highest ever recorded; Atlantic and North Pacific hurricane seasons were above average with 21 storms (including 7 hurricanes) and 19 storms (including 8 hurricanes), respectively; north America had its seventh warmest year while the south had its sixth warmest, the northwestern US and western Canada also experienced an extreme heat wave during the last week of June as did Asia which had its seventh warmest year since 1880.
The rapid post-pandemic economic recovery, together with a particularly cold winter, have increased global energy demand, which has far exceeded supply. The resulting surge in energy production, after two years of decline, has led to an increase in emissions CO2 deriving from the energy sector by almost 7%, with obviously the increase in the costs of the certificates in turn having repercussions on the price of gas and therefore also on the bills.
European gas reserves at historic lows
Another worrying element to consider are the stocks at historic lows, values never so low as early as mid-January. The combination of an unfavorable climate and economic recovery has led to the use of more gas, oil and coal in the short term and to storing less, also due to the strong – unexpected – recovery in demand which has raised prices, discouraging producers from purchasing gas for storage. According to the report as at 5 February 2022, the level of inventories is lower than the 5-year average, equal to 36% (as at 30 March 2018 it was 17,8%). This means that we hit the bottom a month earlier than average. If in February and March gas inventories fall in line with the 5-year average (in January -16,5% against an average of -18,5%) at the end of March inventories would be full at 18,5%.
A problem that will also affect next winter if European stocks struggle to fill up, re-presenting the same crisis in 2023 as well, with consequences in terms of bills and energy costs.
Domestic gas production down and heavy dependence on imports
From 2000 to 2019 the European scenario has changed a lot. Italy remains at the top in dependence on energy imports, with 87% (against 77% in 2000) against a European average that grew by only 4 percentage points (56% in 2000 to 60% in 2019). In second place we find Germany with a dependency equal to 67% against 59% in 2000; in third place the Netherlands which saw one of the greatest peaks: going from 38% in the early 64s to 2019% in 17. Even worse is the United Kingdom which has touched the longest period of low wind production in the last ten years, increasing its need for imports (from -2000% in 35 to +2019% in XNUMX).
But the continent cannot even count on domestic production. The slow decline in gas production from the Dutch giant field Groningen has done its part (due to the closure of the field by government mandate due to the seismic risks associated with drilling.)
Energy crisis: geopolitical risks and liquefied gas
Although the USA and Asia have prepared contingency plans to compensate for a possible reduction of Russian gas to Europe, by transporting liquefied gas to the Old Continent – which can be introduced into the national networks through the regasification plants – this is not enough. The transport network on European soil that comes into play once the ships have unloaded their cargo cannot ensure a full replacement of the Russian flows. And in the event of an escalation of the Ukrainian crisis, these flows could only marginally compensate for the stop on Russian gas.
What are the prospects for Italian energy-intensive companies?
The Italian energy system is characterized, as we have seen, by a greater dependence on natural gas and by higher system costs compared to other European competitors. The persistence of the energy crisis could have two effects on Italian companies: in the meantime, they could suffer a loss of competitiveness on international markets and then an erosion of margins if, as is likely to be the case, it were not possible to pass the recent increases in the relevant energy downstream.
For this reason, the Authorities are drawing up a mitigation plan. For example, Arera - the Energy, Networks and Environment Regulatory Authority - accepted the content of the Sostegni-Ter Decree and introduced the cut in charges for companies with power of at least 16,5 kilowatts.
Following are the natural gas forecasts (in denomination currency) from now to 2025:
