Page 37 - bne IntelliNews monthly magazine October 2024

bne October 2024 Cover story I 37
strain on the supply side of the market and increased price volatility that the US and Russia don’t suffer from.
The EU is the largest global gas and LNG importer. It has little gas of its own and what it does have is in decline now The Netherlands’ large Groningen natural gas field and the UK’s North Sea fields are exhausted. The differences in what Europe pays for energy and what the US and emerging markets pay is a millstone around European companies’ necks. Russia has always enjoyed cheap energy, but now it is selling it to the friendly countries at a steep discount, handing them an extra competitive advantage on top of their already low labour costs. The US also enjoys much cheaper energy.
Russia, with its copious supplies of
gas and nuclear power plants (NPPs), has long enjoyed an energy dividend
in manufacturing. And since China became the global green energy champion producing the majority of the world’s renewable energy, it is seeing its energy costs tumble.
“EU companies face electricity prices that are two to three times those
in America. Natural gas prices are four to five times higher. Over time, decarbonisation will help shift power generation towards secure, low-cost clean-energy sources,” says Draghi. “But fossil fuels will still set the energy
price for most of the time for at least the remainder of this decade. Unless Europe better transfers the benefits of clean energy to end-users, energy prices will continue to dampen growth.”
Germany has been particularly hard
hit, as since it phased out its six NPPs in 2023 – the largest and most efficient in Europe – it has gone from a net exporter of electricity to a net importer of around 11.7 TWh a year. The German shortage is indeed a problem for Germany, but it is an even bigger one for Italy, Austria and Luxembourg that have all become dependent on German power exports to cover their own deficits.
SMEs have been particularly hard hit in Germany, France and other EU states, making formally profitable businesses loss-making.
Mittelstand firms are highly export- oriented, which exposes them to
global market competition. Economic disruptions, like supply chain bottlenecks due to the war in Ukraine and trade disputes with China, coupled with rising energy prices and a labour shortage thanks to the poor demographics, have all combined to hurt their operations
and profitability. The Mittelstand is in the backbone of Germany’s economy, making up 52% of GDP in 2023, and now company after company, particularly in light manufacturing and machine building, is going bust.
“Electricity prices [in Germany] have stabilised somewhat, partly because gas prices have become more stable and because of a decline in industrial activity. The cost of CO2 emissions permits has also dropped significantly. However, electricity prices are still two to three times higher than they were before 2021,” says Holger Zschaepitz, the markets editor at Die Welt. “That’s hurting everyone.”
That is not going to change, as Russia
is in the process of switching its energy export infrastructure – 70% of which used to go to Europe – from west to east. Moreover, this permanent change to the global energy markets, coupled with sanctions means the Global South now enjoys a discount while Europe is stuck paying a premium.
Russian gas to Europe is gone, but the oil sanctions have failed to stop Russia making money from exports. They
are not sanctions, but a huge market distortion. Oil that used to travel a week from Primorsk in the Gulf of Finland to the ports in Rotterdam now takes a four- month journey to refineries in India and China before returning to the European markets as petrol. It’s the same Russian oil, but the trip whitewashes its identity in the name of “sanctions” designed to reduce the Kremlin’s income. Russia
is still earning hundreds of billions of dollars from oil exports and is running a healthy current account surplus and
€0.34 €0.40
€0.21 €0.25
€0.32 €0.35
€0.31 €0.24
€0.28 €0.29
€0.28 €0.34
€0.15 €0.17
€0.07 €0.08
€0.10 €0.11
Average cost of electricity per kilowatt-hour (kWh) for the period between 1995 and 2020
Country
1995-2020 Average (€/kWh)
2020 (€/kWh)
2021 (€/kWh)
2022 (€/kWh)
2023 (€/kWh)
Germany
France
Italy
Spain
EU Average
UK
US
Russia
China
€0.23 €0.30
€0.15 €0.18
€0.19 €0.23
€0.18 €0.23
€0.19 €0.21
€0.16 €0.21
€0.11 €0.13
€0.05 €0.06
€0.07 €0.08
€0.32
€0.19
€0.23
€0.24
€0.23
€0.22
€0.14
€0.06
€0.09
Source: European Commission
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