Russia’s invasion of Ukraine upended energy security worldwide, plunging many countries into an energy crisis that industry leaders fear will last years.
Russia was among the world’s largest oil and natural gas suppliers before the war, but fraying tensions with the West following the invasion disrupted energy markets worldwide.
Russia was Europe’s largest oil and gas supplier last year, and Russian President Vladimir Putin leveraged this dependency last summer when he began limiting natural gas flows to Europe, sparking an energy emergency on the continent. Europe’s ensuing scramble for alternative supplies from the U.S. and the Middle East has had a global knock-on effect by redirecting natural gas flows once destined for developing nations, where an even worse energy crisis is now playing out.
The International Energy Agency, an industry watchdog, has called the global energy crisis “unprecedented” in its depth and complexity while predicting low supply and uncertain markets until 2023 at least, and those leading the world’s biggest energy companies seem to agree.
“Things are extremely turbulent, as they have been the whole year,” Francesco Starace, CEO of energy company Enel, based in Italy, and one of the largest in Europe, told CNBC on Tuesday at a conference in London.
“The turbulence we’re going to have will remain. It might change a little bit, the pattern, but we’re looking at one or two years of extreme volatility in the energy markets,” he said.
Indefinite insecurity
Starace’s comments were made as northern countries enter their heating season, when energy demand is highest and markets are most exposed.
Crunched global energy supply has already led to blackouts in nations including Pakistan and Bangladesh, while energy-intensive industries in Europe such as fertilizer and steel makers have had to reduce production. But the early fears that Europeans might freeze in their homes this fall and winter due to scarce fuel supplies have so far been quashed by unseasonably warm weather, low energy consumption, and a speedy restocking of natural gas reserves despite limited supplies from Russia.
But with energy markets set to remain unstable for the foreseeable future, Europe’s energy crisis could last much longer than just this winter as Russian gas supplies continue to decline and demand from countries including China, where energy consumption is down because of COVID lockdowns, could rebound.
Starace cautioned that while Europe may be able to skate past a severe crisis this winter, the same could not be said for next year.
“I think we will get through the winter because of all the storage we were able to fill in, and then we’ll find out that we’ll have to refill the storage for next winter…without Russian gas,” he said.
“Let’s not forget we had [Russian gas] in ’22—less and less—but we had it,” Starace said. “Too many things need to happen so that next winter is safe.”
The IEA warned earlier this month that Russian gas flows to Europe could continue declining to half their current amount by next year and potentially “cease completely,” while cautioning that refilling storage in preparation for next winter would be more difficult for European nations.
The long view
Starace said the only long-term option for Europe and other countries facing an energy crisis is to reduce consumption.
Europe will have to save gas “every time we can, consume less of it, get rid of those uses of gas that make no sense, and leave it for the industry that needs it,” Starace said. He added that figuring out how to cut energy use would be the “big fight” to focus on in 2023.
To maintain supply and keep prices stable, European Union member nations agreed in September to voluntarily reduce electricity consumption 10% by March 2023, in addition to a mandatory target of 5% during peak hours.
But moderating energy consumption will likely have to become a long-term habit for Europe. The continent’s energy crisis represents a “unique opportunity for Europe to really reshape its energy demand and to reassess the way it is consuming energy,” Tatiana Mitrova, a research fellow with Columbia University’s Center on Global Energy Policy, told Fortune in October.
“These are habits which have to change anyway if we are serious about climate targets, but now they will be forced by enormously high energy bills,” she said.
Last month, the IEA forecasted that the energy crisis could be the spark behind a more aggressive shift from fossil fuel consumption. The agency noted that renewable energy sources had played only a “marginal role” in rising electricity costs worldwide, while fuel sources including natural gas have caused utility bills to double if not triple across Europe this year.
In September, Enel’s Starace told CNBC that European countries could use the energy crisis to reduce their fossil fuel use and pivot toward renewables, having previously said that burning gas to produce electricity was “stupid.”
“I think we have finally understood how hooked we were on gas, how foolish this dependence is, and how we can fix this,” he said, adding that the “economy can work much better, relying much less on fossil fuels, than people think.”
