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- Europe’s soaring electricity prices—now among the highest in the world—are forcing governments to rethink anti-oil and gas policies.
- Countries such as Germany, Italy, Greece, and the UK are quietly returning to hydrocarbons.
- Imported liquefied gas has come to replace Russian pipeline gas, but European countries are paying a high price.
When Germany earlier this year approved an offshore gas drilling project, it raised a lot of eyebrows. An energy transition champion, a record breaker in wind and solar installations, now Germany was turning back to hydrocarbons—and it is not alone in this.
European countries have seen their electricity costs rise to some of the highest in the world over the last decade, despite promises that the transition from coal, oil, and gas to wind, solar, and batteries would be both clean and cheap. It has been neither, with most of the equipment for wind and solar installations produced cheaply in China using its abundance of coal power generation capacity.
Yet while the “cleanliness” credentials of the transition tend to get habitually swept under the rug, doing the same with soaring costs for electricity has proven a lot harder.
The Wall Street Journal reported this week that electricity costs industrial consumers in the UK the equivalent of $0.338 per kWh, and in Germany it comes in at $0.267. The UK has the highest industrial electricity rates in the developed world. In the United States, the rate is just $0.081, and in Canada it is $0.094. For household consumers, Germany leads with $0.425 per kWh, followed by the UK again, with $.0386 per kWh.
That such electricity costs are unsustainable for any extended period of time has been demonstrated time and again, especially over the past three years, by GDP growth figures, other economic indicators such as manufacturing activity, job losses, and consumer spending. The latest from the eurozone, for instance, shows yet another contraction in factory activity in November, along with accelerated job losses. Europe is deindustrializing, increasingly fast, and doing so because of its determination to eliminate its dependence on hydrocarbons as it builds more LNG import terminals.
Imported liquefied gas has come to replace Russian pipeline gas in the wake of the EU’s sanction barrage against Russia following its invasion of Ukraine, and the sabotage of the Nord Stream pipeline. It has, however, come at an exorbitant cost, which has in turn motivated a second look at domestic production, especially of natural gas.
Reuters’ Ron Bousso reported this week how countries including Greece, Italy, and even the UK are reconsidering their transition focus to allow for continued production of energy commodities that have proven to be difficult to give up—and expensive. Bousso mentions several recent oil and gas projects in Europe, such as the expansion of Energean’s Block 2 project in the Ionian Sea with Exxon, and Shell’s statement from last month that it was willing to invest more in Italian oil and gas exploration as soon as the government lifted restrictions on such activities.
This is the energy policy context in which Germany and the Netherlands decided in July to drill for natural gas in the North Sea—and not just in the North Sea but in a protected marine area of the North Sea. Of course, emissions remain front and center in decision-makers’ minds, even when they give the go-ahead to new hydrocarbon production, so all the new projects have stipulations in that respect. However, the very fact that such projects are being allowed to proceed is significant in its own right. It is, in a sense, an admission that wind and solar cannot replace hydrocarbons.
All that Europe has to show for its transition ambitions is a reduction in carbon dioxide emissions that has come at a price that many consider unacceptable—and these many are voters that are starting to get increasingly unhappy with the people setting the agenda.
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