Europe’s big energy bill
Europe has racked up a huge bill shielding its citizens from runaway energy costs: 768 billion euros (825 billion USD) since September 2021, according to Bruegel. Germany was the biggest spender by far, earmarking over 264 billion euros—far higher than the next highest spenders UK, Italy, and France, and also significantly higher in terms of GDP share.
But while the massive spending has helped Europeans weather the energy crisis, a long-term solution demands a fundamental rethinking of Europe’s energy policies. And on that front, much work remains…
Lots of gas in reserves, not enough gas contracted
Take gas reserves, for example. Europe entered the winter with some of its highest gas stockpiles in years. Those supplies are now essentially stuck as European gas prices have fallen to an 18-month low. That means gas used to fill the inventories was purchased at much higher price, so sales from the stockpile will come at a huge cost—to the tune of billions of euros—to energy users and taxpayers.
Meanwhile, Europe will continue to need more gas—but it hasn’t signed enough long-term contracts with LNG producers to secure supplies. Data from the Shell’s latest LNG Outlook report show that Europe’s long-term contracts barely cover 20% of projected LNG demand in 2030. That compares with roughly 80% for Japan and 75% for China. Without enough long-term supplies locked in, Europe is exposing itself to the volatile spot market—”a recipe for sustained insecurity,” as Greece’s chief energy advisor put it.
Austria presents another kind of cautionary tale. Prior to the Russia-Ukraine war, the country relied on Russia’s state-owned Gazprom for 80% of its gas imports. That level fell in the months following the invasion, but is now back up and nearing pre-war levels. And the Austrian government is reluctant to stop the inflows of cheap Russian gas, citing long-standing contractual obligations between the country’s energy major OMV (about one-third state-owned) and Gazprom.
Dutch TTF Natural Gas Futures
The US, global oil price maker
Surging US oil exports are strengthening America’s global pricing power of the fuel. Producers, refiners, and traders, looking to hedge bets, are piling into contracts for West Texas Intermediate Crude sold at the Texas hubs of Houston and Midland. The surge in daily trading of these contracts is quickly marking the “rebirth of US oil as the driving force of global oil price,” as an S&P Global analyst put it. Plus, Midland crude’s forthcoming inclusion in the Brent global benchmark in June will further formalize US oil exports’ influence on worldwide prices.
China’s big grain push
Beijing this week published its “No. 1 central document,” the first key policy statement released each year. Following last year’s run up in global food prices, food security is a major priority in the document (as it was in the previous edition). The policy statement calls for boosting grain production capacity by 50 million tons, roughly an 8% increase from current capacity. Authorities want to expand soybean and oilseed planting, and speed up the commercialization of GMO grains. The government will also increase soybean and corn subsidies and pilot new insurance schemes. Meanwhile, China is reportedly back in the market for US soybeans, at least for now, as a result of delays in Brazilian shipments.