vVisitors to Warsaw tend not to sunbathe at this time of the year when the temperature is around 20°C. Bilbao is typically frosty in January, not tropical. But this winter is a strange one. Temperature records are being broken and energy prices are plummeting across Europe: the price of natural gas at the continent’s main hub has fallen to levels last seen before the war Ukraine.
A warm autumn delayed the heating season and filled the gas storage tanks to the brim. The current warmth has allowed them to replenish (see chart) – a startling turn of events in the middle of winter. Overall, in the past two winters, Europe sucked half as much gas from storage facilities as at this point in time. And forecasts point to a mild winter end.
The good weather is not the only reason to be happy. Gas supplies are growing as new LNG terminals come online. A wet autumn and windy winter have helped power hydroelectric and wind generators. French nuclear power plants shut down for maintenance are slowly coming back online. “The stressors that caused the 2022 energy crisis are all easing at the same time,” notes Lion Hirth of the Hertie School in Berlin. Electricity prices in Europe have fallen back to pre-summer levels.
This gives the continent an economic boost. Sentiment indicators have risen for two months in a row. Despite gloomy forecasts, German industrial production is holding up. Unemployment remains at rock bottom across Europe and companies plan to hire more rather than cut jobs. Forecasters raise their growth forecasts. Bank Goldman Sachs sees the eurozone no longer slipping into recession in 2023. in a Flashback to the Middle Agesa change in the weather changes Europe’s economic fortunes.
However, it is still too early to announce an end to the energy crisis. First of all, prices remain well above normal. Overall electricity prices are roughly double what they were in mid-2021. The same gas that costs about €75 ($81) per megawatt-hour today was selling for €10 before Covid-19. Further burglaries are unlikely. Industry demand for gas is expected to pick up; Gas-fired power plants could begin to replace coal-fired power plants.
And even with storage facilities bursting, Europe still lacks what the International Energy Agency, an official forecaster, says the continent needs for a bad winter next year. Asian demand for gas is increasing and will continue to increase as China’s economy returns to normal. As consultancy Timera Energy notes, the gas market is still at the edge of supply capacity, meaning sharp price movements remain possible.
Europe would do well to bank its luck. Executives could use the opportunity to reconsider the myriad support programs they launched over the summer, many of which are costly, inefficient and untargeted. They would do well to focus money on the vulnerable and tie it to green investments. After all, it is the strangely hot weather that has given Europe its current respite. The fight against climate change will intensify as the energy crisis abates. ■
