Europe's energy crisis gets 8 out of 10 on a scale of scariness, Rystad Energy analyst says. Here are 4 countries central to the crunch.

Zahra TayebAug 21, 2022, 15:30 IST

Europe's energy supply crisis could tip the region into deep recession.(Photo by Armin Weigel/picture alliance via Getty Images)

Europe's energy crisis is "scary," Rystad analyst Fabian Ronningen told Insider.
He awarded the crisis eight out of ten on a scale of scariness.

Europe's energy crisis is "scary" and problems are piling up to worsen it further, according to Fabian Ronningen, a senior analyst at Rystad Energy.

"From one to ten, I would probably give it eight," Ronningen told Insider of the scale of the crisis. "I think that's how bad it is at the moment. Scary is a good way to describe it."

Europe's energy crisis, kick-started by Russia's invasion of Ukraine and deepened by Western sanctions, has left Germany, France, and others fretting over supply shortages this winter.

In apparent retaliation against sanctions, Russia has slashed the flow of natural-gas to Europe via the Nord Stream 1 pipeline to just 20%, sending prices soaring. Russia's state-owned energy giant Gazprom has said European natural-gas prices could climb by another 60% this winter as exports to the region fall further.

Dutch wholesale natural-gas prices, the European benchmark, skyrocketed to a record high of nearly 335 euros, or $341, per megawatt hour in the spring of 2022, per Reuters. Since then, prices have fallen back to about 225 euros per megawatt hour — still a jump of about 300% since the start of 2022.

Making matters worse are a build-up of energy-related problems in Norway, France, Germany, and Russia. "Over the last few weeks, you're getting that increasing feeling of, 'how bad can it get?'," Ronningen said.

Insider delved into the issues of these four countries that appear to be exacerbating Europe's energy supply crunch.

Norway

Photo by Carsten Rehder/picture alliance via Getty Images)

Norway, which sources almost all its electricity from hydropower, has said it plans to cut electricity exports after a dry spring.

The country is among Europe's top exporters of electricity, sending about a fifth of its output to neighbouring countries.

After a period of dry weather in Europe, low water levels in southern Norway's hydroelectric reservoirs have forced the government to act to preserve domestic supply.

Terje Aasland, Norway's oil and energy minister, said recently the government would prioritize refilling its hydroelectric reservoirs over exporting electricity to Europe.

"This is a really big issue," Rystad's Ronningen said.

Norway, which sources almost all its electricity from hydropower, has said it plans to cut electricity exports after a dry spring.

The country is among Europe's top exporters of electricity, sending about a fifth of its output to neighbouring countries.

After a period of dry weather in Europe, low water levels in southern Norway's hydroelectric reservoirs have forced the government to act to preserve domestic supply.

Terje Aasland, Norway's oil and energy minister, said recently the government would prioritize refilling its hydroelectric reservoirs over exporting electricity to Europe.

This is a really big issue, Rystad's Ronningen said.

Germany

helt2/Getty Images

Record-breaking heatwaves in Germany have prompted water levels to fall drastically along the River Rhine, a crucial artery for flows of goods across Europe. Indeed, rivers across central Europe are at "unusually low" levels and are continuing to fall, according to Germany's Federal Institute of Hydrology.

The low water levels have impacted the movement of coal to two power stations in Germany – one in Mannheim and another in Karlsruhe.

After Russia slashed natural-gas flows to Europe via the key Nord Stream 1 pipeline, Germany and others actioned plans to fire up idle coal-power plants to ease the supply squeeze.

Coal will be critical to Europe's energy supplies this winter if Russia completely terminates natural-gas supply to the region.

Record-breaking heatwaves in Germany have prompted water levels to fall drastically along the River Rhine, a crucial artery for flows of goods across Europe. Indeed, rivers across central Europe are at unusually low levels and are continuing to fall, according to Germany's Federal Institute of Hydrology.

The low water levels have impacted the movement of coal to two power stations in Germany – one in Mannheim and another in Karlsruhe.

After Russia slashed natural-gas flows to Europe via the key Nord Stream 1 pipeline, Germany and others actioned plans to fire up idle coal-power plants to ease the supply squeeze.

Coal will be critical to Europe's energy supplies this winter if Russia completely terminates natural-gas supply to the region.

France

Cooling towers of the Civaux nuclear power plant in 2016.Guillaume Souvant/AFP/Getty Images

France, which derives about 70% of its electricity from nuclear energy, is the world's largest net exporter of electricity due to its low cost of generation, according to the World Nuclear Association. But France is having to import more electricity as it struggles with outages at its nuclear facilities: half are down, which is pushing up prices.

French nuclear power stations have been permitted to break environmental rules so they can continue operating to keep the country's electricity generation stable — and save natural-gas for winter.

The French Nuclear Safety Authority authorized a temporary waiver to allow five plants to dispense more than their permitted amount of hot water into rivers. In normal times, under French environment rules, nuclear power plants must reduce or stop output when nearby river temperatures rise beyond a point at which they may harm the environment.

Ronningen told Insider that despite EDF, Europe's biggest nuclear power operator, saying it thinks generation will rise going into winter, there's still a lot of uncertainty.

"To me, it seems the market participants have difficulty believing that fully, because the prices for French power in the winter are so much higher than German prices," Ronningen said.

French nuclear power stations have been permitted to break environmental rules so they can continue operating to keep the country's electricity generation stable — and save natural-gas for winter.

Ronningen told Insider that despite EDF, Europe's biggest nuclear power operator, saying it thinks generation will rise going into winter, there's still a lot of uncertainty.

To me, it seems the market participants have difficulty believing that fully, because the prices for French power in the winter are so much higher than German prices, Ronningen said.

Russia

Russian President Vladimir Putin.ATTA KENARE/Getty Images

At the crux of Europe's energy crisis is Russia.

European Union sanctions on Moscow that seek to ban 90% of Russian oil imports by the end of 2022 appear to have prompted retaliation from the Kremlin. Early in July, Russian state-owned energy giant Gazprom slashed natural-gas flows to Europe via the key Nord Stream 1 pipeline by 20%, having earlier cut flows to 40% of capacity.

Europe is Moscow's biggest customer for natural-gas and crimped supplies have sent prices soaring. There are fears Russia could tip Europe into a deep recession if it chokes off supply altogether.

Rystad's Ronningen said: "One thing for sure is it's going to be a very, very high-priced winter for European consumers because there's still so many uncertainties on what can happen."