EU Energy Policy Is A Trainwreck
By Paul Homewood
This is how the EU energy crisis looks to a US investment analyst:
Investment thesis
The current high energy price environment in Europe risks becoming more or less permanent, given recent events that center around the Ukraine crisis. Europe’s energy security challenges have their root in the 2014 confrontation over Ukraine.
The EU severely misjudged its own natural gas import needs then. It figured that climate change initiatives will severely diminish natural gas demand. It also overestimated LNG availability, especially coming from America’s shale boom. It switched from long-term contracts to spot contracts, believing that natural gas will continue to be in the buyer’s market state for the foreseeable future. Russia was freed up to shift natural gas to other markets or for internal use as a result.
Contrary to past expectations, EU demand for Russian gas increased about 25% in the 2014-2019 period. In response to further delays to the Nord Stream 2 pipeline, it seems Russia may have been nudged towards a final decision on the Power of Siberia 2 pipeline project. If it will be built, it will pit the EU and China against each other for gas from the same fields, with China probably favored as a customer by Russia, given closer relations. If this happens, the EU’s energy crisis is set to become permanent, which will devastate its economy.
Europe’s petrochemical industry is likely to be the first victim, therefore investors should be aware of the more immediate risks. Russian assets are also likely to suffer a temporary downturn in their value if the Ukraine crisis intensifies, but there should be a swift recovery. Beyond its petrochemical industry, the entire economy of the EU is likely to suffer, therefore most companies with exposure to the EU consumer market are at risk of suffering a hit in coming years.
Full analysis here.
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NOT A LOT OF PEOPLE KNOW THAT 
Off topic, Paul, but I wondered if any more info was forthcoming on the DMI Arctic Ice Volume graph “adjustments”?
Thank you.
They say they have improved the modelling, but that “The trend between the years is almost unchanged.”
http://ocean.dmi.dk/arctic/icethickness/icetext.uk.php
But this clearly is not true
Doh never saw that coming……hang on lets close our nuclear down as well, greens are good.
They’re still wrangling over gas and nuclear power, like deciding how soon they want to have chronic energy supply problems.
EU plans to label gas and nuclear energy ‘green’ prompt row
Published 2 hours ago
https://www.bbc.co.uk/news/world-europe-59850093
Obviously Liz Truss has been drinking coolaid
https://www.dailymail.co.uk/news/article-10358319/Liz-Truss-UK-help-Ukraine-reduce-dependence-Russian-energy.html
No country with nuclear weaponry on its territory has ever been invaded. Only one country has ever removed nuclear weaponry from its territory…it was then invaded.
” Only one country has ever removed nuclear weaponry from its territory …..it was then invaded ”
The unsuccessful Bay of Pigs invasion preceded the nuclear disarmament [ against the wishes of Fidel Castro and Guevara who wanted to attack the United States with nuclear missiles ] of the island following the resolution of the Cuban Missile Crisis ..Cuba was not invaded afterward by a hostile power Nor the post apartheid Republic of South Africa , former USSR territories and Eastern Bloc countries – apart from Ukraine and Georgia – that once hosted or possessed nuclear weapons. I’m not sure if war-torn Chechnya and Azerbaijan harbored nuclear weapons as Soviet republics although their proximity to European NATO members Turkey and Greece , U.S ally Israel and the Middle East would suggest so .
Ukraine has lots of coal.
Replacing what works with what sounded good isn’t going too well 🙄
How many politicians and bureaucrats in the EU (and that included the UK) saw the train approaching the buffers at top speed? You could count the numbers on the fingers of one hand.
Remember that gas storage facility we used to have?
And remember the lying ministers who said we didn’t need any extra gas storage. In a democracy we could have had a recall vote on them as most of them are still MPs such as Potatohead Davey, and of course the current minister Kwasi Modo has lied as well.
How many times has this simple minded Engineer been saying exactly this? If ever I got a response from anyone it was along the lines of “Our modelling shows clearly that with the rapid transfer to renewables oil and gas prices will collapse, and obviously nuclear if far too dangerous to be supported. If you were an economist not an Engineer you would understand the underlying complexity of the market pricing and demand changes as warming changes every the physics of world markets”.
Idiots.
It was well worth reading the whole text. Not saying anything we didn’t already know, but saying it very well. My response is the same as ever: we must reduce our reliance on gas and protect domestic users. That means switching as many industrial users as possible including CCGT power generators, to alternative liquid fuels including diesel. It also means exploiting our own hydrocarbon resources to the full. The problem is not going to go away.
You are either very slow witted or (as I have suggested before) you are a troll. Even the Green idiots accept the need for gas, what planet are you from Vernon?
I think Vernon is saying that natural gas is a finite resource and is best used only where it provides the greatest value. Home heating and hot water makes good sense. Burning it for power less so. His argument should extend to burning of coal given that we have hundreds of years of supply, i think burning liquid petroleum for power suffers similarly to gas. We should limit its use to transport etc and not generating electricity .
Agree with Chris comments. Long term, burning gas for base load power generation is not sensible, coal much better. Agree also use gas for heating (very efficient) and cooking.
LPG would make far more sense for cleaner city vehicles. Also cost effective to convert petrol vehicles.
HMG energy policy/interference now completely f*cked things here in the UK. The linked article is a very good analysis. Just hope the oil industry gets sufficient revival in the next 5 years to give me something for retirement. And to stick it to all the idiots trying to take over our long established and illustrious petroleum geoscience societies with the “energy transition” bollocks.
Dung: you obviously have difficulty reading.
crickshaw and TS: Of course a return to coal would be welcome but unfortunately most of our remaing power stations are CCGT which can readily be adapted for liquid fuels but can’t burn coal. I’m looking for short term, low cost emergency solutions. Keeping up, Dung?
I think we all need to ignore Dung’s remarks on this issue as he seems to misunderstand the sensible points most posters make.
I totally agree, burning such a versatile fuel as gas for electricity generation is rather a waste. Much better to run a coal unit in regulated baseload mode and add a bit more (already consented) pumped storage hydro to balance daily variation. Winter/summer variation can be made up by summer only maintenance shutdowns.
Gas is far more beneficial to high efficiency domestic consumption. The minimum standard for a domestic condensing boiler (oil or gas/LPG) is now 92% whilst even CCGT struggle to average much over 40% when run in aggressive grid balancing mode.
More evidence the tyrants ruling Europe are terminally stupid. Is there any way out from under their thumb? Got to hand it to them though, they have made excellent use of the so-called Mannian Climate-Crises to lift liberty from the European populace.
California is not far behind. An in-law relative of mine lives in a town in the California Sierras – they have had historic cold and snow (more of that “thing of the past”) and his electric power has been out for the last five days.
He has wood burning heating and a forest of fuel on his property so he isn’t freezing to death; but he’s totally snowed in with no electricity. California has banned gas-powered electric generators to stave off MannMade Global Warming – you know, gotta cap that MannMade CO2.
He’s a hard-core progressive leftist so he is getting his wishes granted. But does everyone want a freezing, dark world with no working refrigerator and no way to get food but to trudge through thick snow on foot?
This whole “Russia is about to invade the Ukraine” Spiel (Deutshes Wort) is a total joke. There is absolutely no evidence for it.
It smacks of the US govt. having need of an external threat, and nothing more.
So having 100,00 Russian troops gather on your border is not a cause for concern? Paul you have an infestation of trolls
100,000
Have you actually bothered to look at a map? Evidently not.
The 100,000 (guestimate?) troops have been moved to Yelnya. Yelnya is one of the primary western bases for the Russian Army, Belogorod is another, so moving a lot of troops there is really a big deal. The only place you can go west from Yelnya is Minsk, it would be almost a logistical impossibility to attack Ukraine from Yelnya. You have to go a long way back east, then move south west to get the required communication routes needed for an invasion. That or move into Belarus and get bogged down trying to move south on crappy roads.
If they were putting major forces into Belogorod then that might be a cause for concern, it has decent comms, but it is a long way south. Somewhere near Kursk is the logical jumping off point, and with weak opposition getting fancy would be just stupid. But the only reported movements near Kursk are very small beer when you look at the detail.
Ask yourself a more relevant question. Why would the RA put 100,000 in to Yelnya? I refer you to Obama’s spat with Putin in 2016 and the 12 Armoured Brigades “on maneuvers” outside Minsk at that time.
This is an interesting analysis of the Ukraine situation:
https://www.spiked-online.com/2021/12/15/russia-is-not-the-aggressor-here/
I too remain unconvinced the Russians are planning to invade.
Phil D: The whole idea fails the basic political test – why would he want to? Putin knows full well that the western empire bankrupted the Soviet Union, even the DDR ran at loss. He won’t want to take on paying for 50M Ukrainians for zero strategic advantage. A friendly buffer state, that he does want and will do what he must to keep Ukraine out of NATO.
The Baltics are in my occasionally humble opinion a very different matter.
Russia wants, nay, demands, that Ukraine does what it promised and abide by the Minsk Agreement that was ratified by all interested parties and adopted by the UN Security Council:
https://www.un.org/press/en/2015/sc11785.doc.htm
They, Russia, don’t want to interfere in the internal business of Ukraine, while Ukraine wants them to – in order to internationalise the internal dispute, a dispute that was kicked of by the 2014 coup, arranged by the US and EU. I guess Russia knows that if they became involved they would end up getting even more involved and become part of the mess. And time is on their side: they have gas (Methane) and the West, with Energy Policies directed by History graduates 🙂 , do not. The West need to know that, when in a hole, stop digging!
Russian troops weren’t “on the border”. They were some distance away, as reported by many sources at the time, and were responding to the West’s feeble attempt at attrition from a weak position, and have returned to barracks.
It is very instructive to see what is going on in Europe at the moment. For example The Netherlands has 15.5GW of gas capacity but is rarely using more than a tenth of that capacity. Conversely they have less than 5GW of coal capacity but are regularly using it all flat out. Naturally our German cousins have the inflicted pragmatism to burn coal (and any old shit they can get to burn) as often as possible simply to make up from the nuclear they have already and will soon be abandoning. But then again they are only too happy to import nuclear generation from Belgium, France, Switzerland, Czech Republic and Sweden etc.
Coal consumption in the EU is increasing and perversely it is those naughty Eastern Europeans who have sold their souls to the naughty Nukes (according to Saint Greta that is) who will be profiting when their new units come on line. No doubt when the new Kalliningrad unit opens it will be in full on export mode into the EU.
so for us I suggest we re-open some coal mines, convert all of Drax to burning sensible stuff, revamp Ratcliife-on-Soar and West Burton and even convert Lynmouth back to coal. Obviously get some modern coal units (get Tony Blair to re-spout on about “Clean Coal” like he used to spout on about “New Labour”) built as well. In the meantime get as much stock of diesel as possible and have every OCGT well stocked for emergencies.
Apart from the obvious action of getting Rolls Royce , Moltex and Nuscale banging out SMRs, we also need to undertake massive oil and gas exploration (by whatever means, conventional or otherwise) throughout suitable areas onshore and expand anything left available in the coastal waters. Coalbed methane should also be on the cards.
If wind and solar is really as cheap as the Greenies claim then ditch all the subsidies, priority grid access and constraint payments and use the saved dosh to finance all the above.
If someone put that in an election manifesto I would probably vote for them.
Spot on Ray. Won’t happen until the shit actually hits the fan here in the UK.
I fear that the shit/fan scenario will have to happen more than once in the UK if Princess Nut Nuts is still running the country. The first regional/national blackout will be put down to insufficient greencrap. To rectify the situation increased impetus will be given to new solar/wind/tidal installations. Only when the inevitable happens for a second time will the church fall and the bishops be defrocked.
Of course, if a sufficiently large number of the British public die of hypothermia or are driven into fuel poverty this winter or next there could well be a premature dethronement.
Echoes of the 1970’s oil crisis. The CEGB built some oil fired power stations to diversify primary energy supply on expectations that oil would stay under $2/bl. The oil fired power stations ran during the miners’ strike, but otherwise provided reserve with low load factor due to relatively high fuel costs, and then further limited by constraints on SO2 and NOx emissions.
The UK added gas fired generation to the thermal mix, following deregulation of the power and gas markets. Today, oil- and coal-fired capacity is either closed or closing soon, leaving only gas as the fuel for operation of firm-flexible power capacity in the UK.
Relying on one primary fuel source for critical services is single point of failure risk, and not healthy for UK continuity of power supply. Even if the load factor is low, firm-flexible generating capacity will need to be operated on demand, or total supply is unfulfilled.
The UK might not be talking about it too much yet, but diversity of primary fuel supply is one of the high priority issues waiting in the wings (both for the UK and the EU as the topic of the above story).
It is a lesson we all seem to have forgotten. We’ve given the ideology of “market knows best” our best shot, and it seems to be evolving into a trainwreck. That’s not a great comment on the “report card” of the free market.
Market mechanisms should operate fine if they can put an “investment grade” value on the supply of a commodity or service. I don’t believe this is the case for security of power supply.
Security of power supply needs to be capable of correctly valuing “supply margin” (total installed capacity to exceed peak demand), diversity of generating technology (reducing “type risk”), supply of ancillary services to stabilize the network, diversifying primary fuel supply, different forms of reserve among these, plus locational factors.
This is all a bit too sophisticated for investors to achieve an “investment grade” valuation of the next generating plant to be added with the effect that the market will satisfy consumer demand for continuity of supply. If we wait for investors to show up, we’ll get a trainwreck for one or more reasons from the above.
If the market mechanism will not give us what we want, we need to be pragmatic and consider what alternative is the best for the complexity of continuity of supply. It does not mean nationalisation (which would be extremely expensive), but it does need coordination. Some measure of central planning and procurement (private sector competitive offers to provide the capacity) has already evolved in the UK, and that’s probably the way it will need to be.
Jordan, yes but… you are missing the point that the UK has not run a free market in energy policy for decades now. It is massively skewed to renewables by government diktat whilst government pretends its a free market. This way the government can scapegoat the energy companies and pretend to be the good guy eg with price caps.
It’s starting to unravel pretty quick. The situation is completely unsustainable and the shit is going to hit the fan. The only question is which comes first: do back bench Conservatives wake up in time; or do prices go through the roof (along with more energy supplier bankruptcies) or the lights go out?
Two of those three will make the Conservatives unelectable for a generation. Again.
TS, I agree, except I would put it further: you say a free market has not existed for decade, whereas I say it never existed.
The closest we got was the dash for gas in the 1990’s, and even this happened with the backdrop of the “Coal CfD” and the NFFO (two major government interventions). This resulted in yet another major intervention in the form of the “gas moratorium” preventing new build CCGTs for a couple of years. All this within just a few years of privatisation.
Then the incoming Labour Government, who seemed to have developed a hatred for the electricity Pool, put the industry through the upheaval of a bilateral contract market, and we got NETA in yr 2000 (New Electricity Trading Arrangements).
NETA did not stop the heavy-handed interventions. There was CO2 pricing, introduced by the EU and then “amplified” by the UK. Today, on the generation side, we have government choosing winners in the technology contest through the Good Quality CHP, RO, CfD, FiT schemes, the capacity market, and now the coal ban. On the supply side, we have government seeking to control electricity marketing activities instead of leaving suppliers to compete on customer service, and government setting supply prices, and (it would seem) even deciding who might stay in business and who is small enough to “let go”.
All of these interventions happened because the government (and the electorate) did not trust what the free market would do. Whenever the free market got the chance to try, there would be some control measure introduced.
That’s why I say we “gave it our best shot” and our best shot was even worse than the CEGB’s centrally planned approach.
There are good reasons for this. I explained one of them, although there are other significant market failures. If left to get on with the job, I don’t believe the free market is sophisticated enough to put an “investment grade” value on security of supply. This involves valuing a variety of measures needed to provide the levels of continuity of supply expected by power consumers.
If there is no market mechanism to put an “investment grade” value on (say) diversity of fuel supply, the free market will only ever give us gas fired generating capacity. This failure (and others) would lead to supply disruption and price spikes. Nobody would be responsible because security of supply is nobody’s individual responsibility (“the collective market” is supposed to provide it). When this happens (only a matter of when), the electorate would be irate, and pin the blame on government incompetence. Governments would be expected to step-in to put matters right, bringing us back to a centrally planned approach.
Nobody is stupid enough to give the free market a try. Not in the UK, Europe, the US or elsewhere. The pragmatic approach is to accept a centrally planned generation mix is the only way to do it.
This needs mechanisms to keep ideology and fashion out of the planning process. And I make no claim that it is ideal – it is only better than something that is worse.
Once technology and location targets have been set, the free market can have a part to play in procurement, delivery and operation. The free market just cannot decide the overall shape of the generation mix – that part is too complicated.
We are more-or-less in that position today. We just don’t seem to have noticed, which leads to complaints about government tinkering in the market. Phrases like “pretending there is a free market”.
It is better to accept the tinkering is part of the process, and then people can make the case for the technology mix they believe satisfy security of supply criteria (at reasonably minimised cost). Nuclear, for example.
We have enjoyed the legacy technology mix provided by the CEGB for the last 30 years. Now that legacy is quickly disappearing. We need to return to what the CEGB did best to keep enjoying the benefits.
‘The latest crisis risks a permanent shutdown of EU’s petrochemical industry.’
“In this present crisis, government is not the solution to our problem; government is the problem.” – Ronald Reagan, 1981
Looking at the energy resources available to us right now and which of them to use, you need to look longer term. Coal is cheap and reliable but it is certainly one which is not being renewed (at least in a time scale that we can forsee) and therefore should be left alone in the short/medium term.
Within 9 years a company called Tokamak in the UK will give us commercial small scale fusion reactors and so Nuclear (small scale and large scale) should be avoided because of cost and impending obsolescence and the same goes for wind and solar.
We need a cheap reliable fuel to get us through until we get fusion, gas is the answer (both now and after we get fusion). Our natural gas resources are mind bogglingly massive (North Sea and land based natural gas) plus Shale gas and later Methane Hydrates, we are talking hundreds of years.
We should exploit oil which gives us cheap reliable fuel for our road transport because it provides personal freedom apart from other considerations.
Tokamaks have been around for 70 years. No tokamak EVER produced more energy than it consumed.
“Within 9 years a company called Tokamak in the UK will give us commercial small scale fusion reactors”
Your optimism is foolhardy.
Yes, timeframe is important. Extending the NSea gas production might need government help if this is as short lived as you imply. Getting fracking going in a short time frame will be impossible. Given that the resource has been identified still requires 5 – 7 yrs to put the infrastructure in place. Gas is not available in the volumes required currently (otherwise we wouldnt be in a gas price spike). Hence the coal comment. I confess to not knowing what our theoretical coal power limit is today. I assumed that not everything was demolished!
The Tokamak I referred to is Tokamak Energy , a UK company based near Oxford, https://www.tokamakenergy.co.uk/