The energy crisis and Europe's astonishing luck

Visitors to Warsaw at this time of year don't tend to bask in temperatures approaching 20°C . Bilbao is generally freezing, not tropical, in January. But this winter is strange. Temperature records are being broken across Europe and energy prices are crashing: the price of natural gas at the continent's main hub has fallen to levels not seen before the war in Ukraine.

A warm fall delayed the heating season, allowing gas storage facilities to be filled to the brim. The current heat has allowed them to be replenished (see table) - a surprising twist in the middle of winter. In total, Europe has sucked half as much gas from storage facilities as it has at this stage over the past two winters. And the forecasts announce a mild end to winter.

Good weather isn't the only reason to rejoice. Gas supply is increasing with the commissioning of new liquefied natural gas terminals. A wet fall and windy winter helped propel wind turbines and turbines. French nuclear power plants, shut down for maintenance, are slowly returning to the network. “The stressors that caused the energy crisis of 2022 are all unwinding at the same time,” notes Lion Hirth of the Hertie School in Berlin. Electricity prices in Europe have fallen back to levels last seen before the summer.

It gives the continent an economic boost. Sentiment indicators have risen for two consecutive months. Defying the gloomy predictions, German industrial production continues to hold up. Unemployment remains at an all-time low across Europe and companies plan to hire more rather than cut jobs. Forecasters are raising their growth projections. Goldman Sachs, a bank, no longer sees the Eurozone slipping into recession in 2023. In a throwback to medieval times, a change in weather is changing Europe's economic fortunes.

However, it is still too early to announce the end of the energy crisis. For starters, prices remain well above normal. Global electricity prices are about double what they were in mid-2021. The same gas that costs around €75 ($81) per megawatt hour sold today for €10 before covid-19. Further declines are unlikely. Industrial gas demand is likely to pick up; gas-fired power plants could begin to replace coal-fired ones.

And even with bursting storage facilities, Europe still falls short of what the International Energy Agency, an official forecaster, estimates the continent will need to a bad winter next year. Asian demand for gas is increasing and will increase further as the Chinese economy returns to normal. As noted by Timera Energy, an advisory firm, the gas market is still operating at the limit of its supply capacity, which means that sharp price movements remain possible.

Europe would do well to take a chance. Leaders could take the opportunity to rethink the myriad of support programs they introduced over the summer, many of which are expensive, ineffective and untargeted. They would be wise to focus the money on the vulnerable and tie it to green investments. After all, it was the oddly warm weather that gave Europe its current reprieve. The fight against climate change will only intensify as the energy crisis subsides. ■