What does the European energy crisis look like for businesses?

Russia’s military aggression against Ukraine and its weaponisation of gas supplies provoked an unprecedented energy crisis for the European Union. They caused a significant rise in energy prices, which impacted all members of society. While the EU took action and made significant progress in 2022 to curb its reliance on Russian gas supplies, the International Energy Agency (IEA) urges we may not be out of the water yet. 

However, the war in Ukraine has highlighted the need for us to rethink energy supplies, output, and consumption. This situation presents an opportunity for businesses to enhance their corporate sustainability strategies, focusing on energy efficiency and reducing reliance on Russian natural gas. Continue reading to learn more about the European energy crisis and how it has and could affect businesses, big and small.

What is the European energy crisis? 

You may know it by name, but you’ll certainly remember the European energy crisis. It occurred when Russia invaded Ukraine. When they did this, it reduced pipeline deliveries of natural gas to the European Union by more than half. This placed unprecedented pressure on European and worldwide gas markets. Ultimately, it drove European gas prices to record levels. 

Despite reaching record levels, the EU managed to boost its gas storage levels by a record amount in 2022. A number of factors contributed to this. Firstly, Russia still delivered a considerable amount of natural gas to the EU throughout the year. Approximately 60 billion cubic metres of natural gas, to be precise.

Secondly, Europe was able to secure supplies of LNG, or as it is otherwise known, liquified natural gas, from countries like the United States. Another element at play was the unseasonably cold weather at the beginning of Europe’s winter. In addition to lower energy use due to the rising bills, this cut the demand for gas too. 

The IEA has said Europe made significant progress in 2022 curbing its reliance on Russian gas supplies and ensuring it had an adequate amount in storage. However, that does not mean we are completely independent and no longer need to rely on Russian gas supplies. 

There is speculation that Russian gas deliveries could be very low this year or even, reach zero. While we may have made strides in reducing our alliance, this outcome could create an even greater gap in European and worldwide gas supplies than in 2022. In saying that, if demand from China picks up, competition for supplies of LNG could boost. 

There is also no proof or guarantee that Europe’s cold winter temperatures will maintain. It has been predicted that the EU could face a shortage of around 30 billion cubic metres of natural gas this year. With all this in mind, there is a lot of conversation about how to close the supply-demand gap in the European Union. Changes and additional actions are expected to help us do so. For instance, by utilising renewables, switching fuels, and improving energy efficiency overall. 

How is Europe going to close the gas gap?

You are probably wondering how exactly Europe plans to close this significant gas gap. The IEA has already been working on this and has identified five priority action areas for the EU. These action areas will help to speed up improvements in energy efficiency; switch to electric heat; especially through heat pumps; roll out renewables; drive behaviour changes, and scale-up gas supply. 

The IEA shares further specific actions under all of these areas. For instance, energy efficiency enhancements involve assisting businesses and homes to become energy efficient. Additionally, driving the use of high-efficiency lighting and appliances. To speed up the deployment of renewable energy installations, some of the suggestions involve more robust investor incentives, as well as cutting the time involved for projects to be approved. 

The IEA estimates that simple behaviour changes, such as turning down thermostats could also save the EU an additional 5 billion cubic metres (bcm) of gas this year. Actions such as regulation and awareness campaigns can promote these behaviour switches. The IEA plans to promote additional savings in SMEs and industry too. They have stated that many industrial players and SMEs have already made strides to save energy in today’s crisis. 

However, they estimate that further support from policymakers could create additional savings of around 2.5 bcm this year. Some of their ideas include fund audit schemes for SMEs, and obligations to implement no-cost measures and offer assistance to recognise additional energy savings. Not just that, but they want to concentrate industrial energy efficiency programmes and information support measures, on actions with immediate impact. 

Finally, they want to prioritise investment that introduces substitutes for natural gas. These could include the direct use of waste heat and electric technologies for creating low-temperature process heat. Both of these are usually very cost-efficient. The Danish Business Pool programme is a brilliant example of a funding scheme that has been switched to curb our reliance on natural gas in response to the current crises. Ultimately, the war in Ukraine highlights the need for us to rethink energy consumption, supplies, and output. 

How does it affect businesses? 

According to Euro News, the five industries that account for more than 70 percent of the sector’s total energy use in Europe are chemical and petrochemicals, non-metallic metals, paper, pulp, and printing, food, beverages and tobacco, and iron and steel. 

The industry sector accounted for 25 percent of Europe’s final energy consumption in 2021, making it the third-biggest consumer following transport and households. How exactly does the energy crisis affect businesses? 

Increase in prices

One of the most obvious effects of this crisis is that businesses will see an increase in their energy bills. This is due to the demand for energy increases. Just as the demand increases so does the price. 

This places a lot of pressure or stain on already tight budgets. In addition, it pushes enterprises to make cutbacks in other areas or even shut down for good. The higher energy bills also make it very challenging for organisations to hire new staff, expand, and grow. 

Power cuts

Another way the energy crisis could affect businesses is via power cuts. With the demand for energy increasing, power plants have difficulty keeping up, meaning there is less electricity to go around. 

What this could result in are widespread power cuts which are notably extremely disruptive for enterprises. Power cuts can cost businesses a significant amount of money, and the likelihood of them only increases as the energy crisis progresses. 

Supply chain

The energy crisis could also impact businesses through their supply chain. This is because price rises cause transportation costs to increase too. The impact of this could be that goods are delivered late or not at all, causing disruption and potential loss of customers. 

Accessing finance

Businesses could also face hurdles when trying to access finance. This is because as the cost of running a business rises, so do the risks linked to lending money to organisations. Banks and other financial institutions could become more reluctant or sceptical regarding lending money to businesses. This would make it difficult for them to expand, grow, and survive. It is also vital to note the energy crisis could result in inflation which would further erode the value of money and make accessing finance harder for businesses. 

The energy crisis has unveiled the vulnerabilities in Europe’s electricity market, and the only way for Europe to get out the other side is in a sustainable manner to fix the imbalance. This can be done by lowering their demand, maximising supply, and seeking alternatives. Just as Germany is doing, we have to build floating storage and falsification units. We must promote solar energy to remove the gas in electricity production and promote the heat pump rollout in our homes to get rid of the gas boiler. 

These are just some of the structural solutions to the Europe energy crisis. 

Summary – What can businesses do to tackle the European energy crisis?

Businesses must plan ahead and work at curbing and saving energy. Enterprises working within sectors from chemicals to steel, papermaking, and automotive to fertilisers are working tirelessly to reduce their consumption of energy to cut costs and prepare for shortages. Many are finding innovative ways to do this. It is important to also recognise price increases will not solve the issue of EU gas shortages. 

Gas is one of the most crucial sources of energy for Europe’s industrial companies, showing we absolutely need to make a shift and rethink our ways. It’s not easy to remove fuel from many industrial processes. In saying that, we cannot waste any more time. We need to drive forward with the EU’s green transition plans and make the switch to renewable energy. This will not only curb our reliance and prevent the likelihood of shortages but also assist us with getting closer to achieving our environmental goals. We cannot wait for the gas gap to get any larger; we need to take action.