Correction: Britain’s gas crisis means Europe’s gas crisis

Remember the 1970s?  We were going to run out of oil and everything revolved around energy prices.

America got into wars because of it and built an enormous strategic stockpile; NZ had carless days and the hydrocarbon developments of Think Big, the last of the great state-directed development projects (well … until the renewables project, national fibre broadband and the distortions of the Resource Management Act that is).

Europe’s natural gas crisis has the potential to head in a similarly dominating direction.

That’s because it is the logical outcome of European energy policy.  If you start closing coal-fired power stations; hamstring nuclear by uniquely demanding de-risking; cut your own natural gas output; and don’t have enough renewables (because they are cripplingly expensive for an intermittent output); then you get a supply problem.

Indeed, you might say it is the desired endpoint of policy: higher prices are essential for decarbonisation.

Yet Europe’s governments are panicking and are trying to prop up consumption of gas they don’t have with subsidies they can’t afford.  The prize so far goes to Spain’s far-left government with an investment-sapping tax on non-carbonised electricity generation. This approach usually ends in price controls and rationing.  And – again as rediscovered in the 1970s – transferring money from highly-productive people to less-productive people too often makes everyone a bit less productive.

Bad policy can also increase dependency on unfriendly people. In Europe’s case, that would be Russian autocrat, Vladimir Putin.

According to the Financial Times, one cause of the price spike is the failure of Russia’s state-directed Gazprom to replenish its European gas storage facilities on schedule for winter demand.  

Happily, a new pipeline from Russia to Germany under the Baltic Sea, Nordstream 2, has just been completed and, as the Politico website explains, merely awaits technical and political certifications to:

“… allow an additional 55 billion cubic meters (bcm) of gas to flow straight to the EU without using existing routes across Ukraine.”

Meaning:

“ … cheaper gas for Berlin, less transit royalties for Kyiv — and lots of political drama.”

So, there is a catch. By-passing the existing pipelines through Ukraine will detach its interests from Germany’s, making both countries more vulnerable to Russian pressure. Although this probably matters more to Ukraine given Russia is occupying its borderlands in an undeclared war.

Another lesson from the 1970s: global energy markets are still fundamental to security.

Europeans might also be reflecting, in light of the crisis, on the levels of control, coercion and cost they will need to eliminate their carbon emissions.  And how convincing their example will be in twenty years, when they politely ask a stronger and richer China to meet its commitment to follow in their footsteps.

One can think of some reasons why it might not want to do so.

And bear in mind that the policy edifice rests not on ‘science’ but on the more speculative modelling of global climate consequences, which is being applied with the same levels of confidence that were attached to the energy shortage modelling of the 1970s or, indeed, more recent Covid modelling.

So far, this looks like an equal opportunity policy crisis – governments of the right have been running into the muck just a little more slowly and less happily than those of the left.  

Could this crisis be a trigger for more divergence?  While Greta Thunberg wouldn’t be pleased, right of centre parties might get some traction with a wait-and-see policy backed by sensible and transparent carbon taxes, maintenance of energy security, and refusing to feed the green subsidy monster.  

It would certainly make for a more interesting debate in next year’s US congressional mid-term elections then wrangles over Trumpism.