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The global energy crisis – short version

Spiking energy prices

Europe has experienced massive increases in electricity and gas prices, in addition to a more than a 100% increase in the oil prices, which at the present is hovering around USD 85/ per barrel. Energy companies are going bankrupt, and the purchase power of the consumers is taking a serious hit.

End of covid lock-down

The energy demand has jumped after the lock-down has been terminated in more and more countries, ensuring a massive decrease in the stockpiles of oil and gas. This jump in energy demand also coincides with the upcoming winter season in the northern hemisphere, giving an extra boost to the post-covid demand. To the website E24 (in Norwegian), Pareto energy analyst and partner, Nadia Wiggen, states that the stocks of oil have dropped to a 5-year low. Further, she states that the markets expect the demand to outperform supply for the next 3 quarters, giving the oil price an upward momentum.

EU production of gas is declining.

The domestic production of natural gas within the EU has been declining for years, making the countries of the union increasingly dependent on imports. Russia being the largest supplier all but ensures geopolitical consequences, with Russia using the supply as leverage vs. the EU.

Norway hits jackpot.

Norway, the second largest provider of gas to the EU, is now printing money, both due to the 400% increase in gas prices as well as the massive increase in the oil prices. Financially, the new Norwegian government could hardly have been more fortunate: The end of covid boosts the national economy and thus tax revenues. This is combined with massive reductions in covid related costs and then as the icing on the cake: a giant leap in oil and gas revenue, both as a large direct owner in the fields but also due to the 78% tax on oil and gas profits.

Europeans squeezed from all sides

For the rest of Europe, 2021 has been more like a perfect storm. Oil and gas prices, combined with record electricity prices caused by low renewable production and high CO2-prices ensures a significant reduction in the household disposable incomes adjusted for energy cost, just when a boost in spending is needed to make all sectors re-bounce and make the wheels turn again. On average, the employed part of the population generally has more cash available, a consequence of the virtual forced saving caused by the inability to spend money on vacations or restaurants during the lock-down. Rapidly raising energy costs will ensure reduced spending both directly by limting the amount available for consumption of other goods and services, but also indirectly through the increased marginal propensity to save that normally follows increased economic uncertainty.

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