Business
Europe’s Energy Crisis ‘Not Over’ Warns Top Utility Exec
By Belal Awad · August 9, 2023
In brief…
- E.On CEO Leonhard Birnbaum warned Europe that structural changes to its energy market since the start of the Ukrainian war are here to stay - meaning continued higher energy prices.
- Birnbaum warned that cheap Russian gas is now "gone."
- The dramatic reduction in gas supplies from Russia has required Europeans to shift to more expensive liquefied natural gas (LNG) from abroad, placing additional stress on energy prices.
- Increased energy costs, especially in Eastern Europe and the UK, will require continued government price relief programs.
As winter looms, Europe is bracing itself for another bleak - and costly - winter. The CEO of Germany’s E.On, one of the world’s largest electric utility providers said that while the risk of energy shortages have been reduced, the crisis is far from over.
“The likelihood of a repetition of the crisis of last winter has gone down significantly,” E.On’s top executive Leonhard Birnbaum told BBC, referring to the huge spikes in energy costs that left millions struggling to pay their utility bills in 2022. “But we have to be clear that the structural change due to the Russian war against Ukraine and the drop out of Russian gas for supply of Europe is going to stay, and therefore the crisis is not over.”
Prior to the conflict in Ukraine, Europe relied heavily on Russian natural gas piped into the continent. Those supplies have been severely reduced since sanctions were imposed on Moscow after the start of the war. Birnbaum warned that cheap Russian gas is now “gone” and will be replaced by more expensive liquefied natural gas (LNG) shipped from abroad.
“We are modeling a structural increase of prices because the cheap Russian pipeline gas is gone. It’s going to be replaced by LNG gas and that is structurally higher than in the past,” he said.
Commodity traders predict gas prices will remain two to three times higher compared to pre-pandemic levels, placing a financial strain on households and businesses across the continent. A series of studies by Cambridge Econometrics showed that European households have been spending significantly more on energy and other everyday needs as a result of runaway inflation triggered by the Ukrainian was. The poor suffer disproportionately from the price squeeze, according to the studies.
Birnbaum said price relief measures will likely remain necessary in Eastern Europe and the UK, where energy accounts for a larger share of household costs than elsewhere.
E.On reported strong earnings in the first half of 2023, which Birnbaum attributed to “less headwinds from the market and more tailwind when it comes to the energy transition.” He said the company continues to invest heavily in renewable energy infrastructure.