How Europe Can Manage Without Russian Gas
Trying to keep household gas prices down through price caps will only increase Europe’s import prices and create a vicious cycle of costlier imports and larger subsidies. Creating incentives for households to reduce their energy consumption will be crucial for getting Europe through the winter without rationing.
BRUSSELS/VALLETTA – Over the last few months, gas and electricity prices in Europe surged by nearly 100% to unprecedented levels, then fell by a third, and have now soared again since Russia announced that operation of Nord Stream 1, its gas pipeline to Germany, would remain suspended indefinitely. Many European leaders have reacted to the wild swings in Europe’s energy exchanges by blaming markets. But shooting the messenger is never the right approach.
For European policymakers, energy markets’ extreme volatility proves that these markets are no longer rational. In fact, natural gas is becoming a scarce good, and energy prices are simply responding accordingly. Russia’s suspension of Nord Stream I was not unexpected, given that European gas storage levels are increasing rapidly, and Russian President Vladimir Putin knows that he will lose his geopolitical leverage if Europe is prepared for winter without Russian gas.
The scale of the problem is immense. Before it invaded Ukraine, Russia met about 30% of Europe’s gas needs. Since February, European countries have been forced to compensate for this loss through energy savings and imports from alternative sources.