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Europe energy crisis could get much worse and cause high consumer bills, economic

An energy crisis the likes of which hasn’t been seen in decades is unfolding around the world. 

The Russian invasion of Ukraine in February of this year created a ripple effect in global markets. Western nations that once relied on energy supplies from Russia—the world’s second largest natural gas producer and third largest petroleum producer—condemned the invasion by refusing to buy Russian energy, or were cut off by President Vladimir Putin. 

Nowhere is this crisis more pronounced and more dangerous than in Europe, where a long-standing gambit on cheap Russian gas has backfired. At the onset of the war, the European Union’s 27 member nations relied on Russia for 40% of their natural gas—the second most common energy source in Europe behind petroleum oil.

But now, with Russian supplies limited, the benchmark price of natural gas in Europe has more than doubled over the past year, and both consumers and corporations are getting hit hard. 

Electricity bills have already tripled in many places. Some coffee shops and restaurants have seen monthly bills rise from €2,000 a year ago to €7,000 now, and major industries have started furloughing workers and cutting back on expenses due to high electrical bills. The situation is so dire that governments that previously renounced fossil fuels and nuclear power are desperately reopening shuttered coal plants and nuclear sites, and nationalizing utility companies to save them from going bankrupt.

But as bad as it is now, these might still be the good days for Europe. With winter and higher gas demand on the way, experts told Fortune that Europe’s energy market has never been more vulnerable. Even the slightest uptick in energy demand anywhere in the world could push entire sectors of Europe’s manufacturing industry to shut down entirely, devastating European economies with a wave of unemployment, high prices, and in all likelihood public unrest and divisions between European nations.

“Prices are at historically record levels. We have never ever seen anything actually like this,” Tatiana Mitrova, a research fellow with Columbia University’s Center on Global Energy Policy, told Fortune. “This will become quite painful.”

Trying to prepare for a crisis

As soon as the war began in Ukraine, European nations scrambled to secure their energy systems against disruptions of natural gas supply from Russia. They had two options: increase supply of gas coming into the continent, or reduce the demand of gas.

First, Europe turned to the supply side to resolve the mounting energy crisis by diversifying the countries that supply natural gas to the bloc, and reduce its reliance on Russian flows. EU countries looked to Qatar, the U.S., and central Asian nations to strike trade deals for both natural gas and LNG (liquified natural gas), a more easily transportable form of gas that can be shipped by sea rather than flowed through pipelines.

But trying to solve the…

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2022-09-24 04:00:00

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