GERMANY FACES THE GREATEST CHALLENGE, GIVEN THE SIZE AND SCALE OF ITS INDUSTRIAL COMPLEX, AND SUCCESSIVE GERMAN GOVERNMENTS HAVE BEEN ENORMOUSLY COMPLACENT ABOUT THE OBVIOUS RISK OF BEING SO OVER-RELIANT ON SUPPLIES OF ‘CHEAP’ RUSSIAN OIL, GAS AND INDEED COAL
In the meantime, LNG imports will be expected to fill the gap left by Russian supplies. But this reveals another problem, namely that LNG obviously requires its own storage and regasification infrastructure, which exists in some countries, most notably Spain, France, UK, Belgium and Netherlands, but is very notably lacking in others, above all Germany and almost all of Central and Eastern Europe. While Floating Storage and Regasification Units (FSRUs) will offer a short-term relatively ‘quick fix’ to this lack of capacity, the fact remains that existing capacity equates to just 40% of European gas demand, and planned projects (either on land or FSRUs) will only modestly add to that capacity. Per se, the need to reduce demand is all too obvious, but again runs into enormous difficulties given that national governments have to and will act based on their individual energy security and local business needs, and thus bring them into conflict at the EU level.
It has long been recognized that Germany faces the greatest challenge, given the size and scale of its industrial complex, and successive German governments have been enormously complacent about the obvious risk of being so over-reliant on supplies of ‘cheap’ Russian oil, gas and indeed coal, in no small part due to enormous pressure from the captains of industry. In passing, it is worth noting that perhaps the most notable difference between the 2021 and 2022 gas and power price surges is that the 2021 edition was primarily about spot prices, with only a limited impact on long-term forward pricing. But in 2022 long-term prices have surged. 2025 German Baseload Power prices surged from EUR 90/Mwh end 2021 to a peak of EUR 270/Mwh in August, and have only dropped back to EUR171/Mwh at the time of writing.
26 | ADMISI - The Ghost In The Machine | Q3 Edition 2022
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