Economy

Europe – Why are gas and electricity prices surging in Europe? – one of the major ill effect of covid-19

Europe News:We all know how bad the year 2020 was, for everyone around the globe. In the year of the beginning of the COVID-19 pandemic, which is the year 2020, everyone suffered.

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No economic activity, no jobs and therefore no income. Everyone was locked inside their houses with nothing but their family. People had no source of income and therefore everyone’s life was a mess. All the savings got exhausted, thank the COVID-19 pandemic. However, now things have started to get better with widespread vaccine rollout across the globe.

However, people are still fighting every day to get a job as a lot of people lost their jobs in the pandemic. Imagine, you have to face a rise in the prices of electricity and gas during this time when you already have suffered a lot and do not have much savings. Frightening, right?

Well, the people of Europe are currently going through this. The continent is battling several battles at the same time- curbing the virus, providing jobs to people so that they can sustain their livelihood and now the all-time high price of electricity and gas. In this article, we will be discussing about the skyrocketing prices of gas and electricity, how the governments of several nations in the continent are reacting to it, and what is the impact of it on the general people.

What is happening in Europe?

In recent months, power prices in the continent of Europe have been skyrocketing and are higher than ever. The widespread rise in the price of wholesale gas and electricity will have a direct impact on the retail consumers living in the continent of Europe.

gas consumption by region - our world in data

This is the time of year when the demand for electricity and gas is all-time high and therefore the living in the continent of Europe are expected to face inflated prices of gas and electricity in the upcoming months of the winter season. Moreover, the high cost of electricity and gas directly means that the inflation level in the continent in the upcoming months will be higher than what was forecasted.

Why is this happening?

Well, the answer is simple. The price and cost of energy are dynamic and just like any other basic commodity, the price of it also depends on the basic pull and push of the demand and supply, as well as competition in the market and the system of taxation. There are several other factors that can manipulate the cost and price of energy, but not as much as these big factors.

The other factors can be the type of energy mix used by the country, the level and amount of energy that is imported and also the geopolitical conditions and environmental protection costs. These are all the factors which can lead to a rise in the price of energy and therefore cause many problems to the general public, as being currently faced by the people living in the European continent.

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Let us talk about the report of the European Commission on the price and cost of energy which is published after every two years. In the fourth edition of the report published almost a year ago, that is in October 2020, the report noted that the wholesale prices of energy began to rise in recent years before they started to fall in the year 2019.

The major reason for this fall in the price of energy, as suggested by the report was the slowdown of the economy worldwide as well due to the excess of supply. Further, the prices of energy fell by huge numbers in 2020 too, mainly because of the CPVID-19 pandemic which completely restricted travel both globally and locally.

However, the prices were different for different countries on the continent. Some countries paid the highest level of price for energy and gas in the second half of the year 2020, that period of time when the world started to open up.

One such example of this is Germany. For the household consumers living in Germany, the price of energy and gas for consumption was the highest. Later on, people living in Denmark and Belgium had to go through the same This was very difficult for them to bear such high prices, that too when the economy has just started to revive back.

On the other hand, some countries had to opportunity to enjoy the lowest ever price of energy in the second half of the country. This happened in Bulgaria, Hungary and Estonia and the consumers living there enjoyed the lowest ever price of energy and gas. Moreover, the amount paid by the people of Germany was almost three times the amount paid by the people living in Hungary. Shocking, right?

What is going on currently?

Equinor is one of the largest gas suppliers in the whole continent of Europe. It supplies gas to almost all the countries on the continent. According to the reports published by Equinor, the global demand for LNG has been higher than ever. According to them, there are three major reasons behind this rise in the prices of gas in the continent of Europe. The first and foremost reason is the rising demand for LNG from Asian countries.

This demand has increased by a huge amount recently and in the month of September, it is higher than ever. The second reason behind this high price is the low level of European stocks and the last major reason is the rising carbon prices. Carbon is very important in the generation of gas, and with the rise in the price of carbon, the price of gas automatically rises. Moreover, the reports suggest that this high price will last nearly till the winter of this year.

What about the storage capacity?

The official updates suggest that Europe is going to enter the winter season with only 70-75 per cent of its total storage capacity, which is much below the five-year average. Moreover, the continent also depends on the supply from Russia, which is currently uncertain. The uncertainty about supply from Russia through Nord Stream 2 which is currently under construction and will cost nearly $11 billion adds to the rising gas prices.

europe

As of now, Europe Countries depend on Russia for nearly 40 per cent of their total gas supply and with the decision made by Russia-owned Gazprom in August even worsens the current situation of the European continent. The decision taken by Gazprom in the month of August was to limit the supply of gas to European countries because of a fire outburst that took place in the Siberian gas processing plant.

What are the governments doing?

With the rising prices of gas and supply, the countries in the European continent are undergoing a havoc. People are stressed as they cannot afford this high price as they have already been through a lot in the pandemic. But gas and electricity are the basic necessities that everyone needs. Moreover, the demand for it will further rise in the upcoming months of winter.

Therefore, in response to the rising prices, governments of many countries across the European continent are now contemplating aid to the people of their countries in order to tide through the winter season, the season when people need more energy to heat their places and to switch on the lights earlier in the days. Therefore, with the much-needed support of the government, people can and will fight this too.

Edited by Sanjana Simlai.

Simerleen Kaur

Talk to me about economics, trade, and all things India.

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