Europe’s Energy Crisis Could Last for Years

This winter will be bad, but next year’s could be worse.

By , a deputy editor at Foreign Policy.
A woman turns the knob of a gas heater in Dortmund, western Germany, on April 4.
A woman turns the knob of a gas heater in Dortmund, western Germany, on April 4.
A woman turns the knob of a gas heater in Dortmund, western Germany, on April 4. INA FASSBENDER/AFP via Getty Images

Europe is facing a generational energy crisis as it heads into winter. A shortfall of 150 billion cubic meters of gas—gas that Russian won’t be delivering to Europe this year because of its war in Ukraine—has left Europe scrambling to find alternatives and contain the fallout. Gas prices in Europe are now about eight times the average of the past 10 years—and about eight times more expensive than prices in the United States. Governments are appealing to the public to reduce their gas usage while also trying to ensure consumers and businesses can afford to pay their gas and electricity bills at all—all the while preparing for the worst-case scenarios, ranging from periodic blackouts to cascades of industrial bankruptcies.

LISTEN HERE: For the entire conversation, and episodes in the weeks ahead on this subject and others, follow Ones and Tooze wherever you get your podcasts.

Can Europe afford to keep its businesses—and its citizens—warm and safe through this winter? Does the energy crisis mean an end to Europe’s climate policy goals? And can Americans even understand the crisis that Europeans now face? 

Europe is facing a generational energy crisis as it heads into winter. A shortfall of 150 billion cubic meters of gas—gas that Russian won’t be delivering to Europe this year because of its war in Ukraine—has left Europe scrambling to find alternatives and contain the fallout. Gas prices in Europe are now about eight times the average of the past 10 years—and about eight times more expensive than prices in the United States. Governments are appealing to the public to reduce their gas usage while also trying to ensure consumers and businesses can afford to pay their gas and electricity bills at all—all the while preparing for the worst-case scenarios, ranging from periodic blackouts to cascades of industrial bankruptcies.

Can Europe afford to keep its businesses—and its citizens—warm and safe through this winter? Does the energy crisis mean an end to Europe’s climate policy goals? And can Americans even understand the crisis that Europeans now face? 

Those are some of the questions that came up in my conversation this week with FP columnist Adam Tooze on the podcast we co-host, Ones and Tooze. What follows is a transcript of the interview, edited for clarity and length. For the entire conversation, subscribe to Ones and Tooze on your preferred podcast app.

Cameron Abadi: We’re talking about this as an acute energy crisis right now as winter approaches, but my understanding is that next winter is slated to get worse, when gas storage facilities have been depleted and there aren’t supplies to fill them in time. How long exactly is Europe’s energy crisis likely to last?

Adam Tooze: I think the short answer is we don’t know. But it would be foolish to assume that it will be short and that it will be over next year. I mean, barring something unforeseen, like a Russian collapse or some extraordinary deal with OPEC, there’s really no reason to think that the situation is not going to get progressively more difficult. Because the crucial thing is that this year, because Europe was slow to move aggressively against Russia, they were able to fill up the gas storage tanks. I mean, if Europe were to experience a severe winter this year, and there is some meteorological evidence suggesting that we might be headed into that, it’s quite likely that there will be major shortages already this winter. But certainly next year all bets are off, really—it’s not obvious where the replenishment of the stocks will come from next year. Over a time horizon of two to three to four years, with some of the investment in floating LNG [liquefied natural gas] terminals, major economies will begin to really feed through and make the balance easier to strike. There’s a sense that this year is nerve-wracking. Next year looks as though it’s going to be the toughest period. And then beyond that, the situation eases again.

CA: You predicted in one of our podcasts at the beginning of the war that it was probably only a matter of time until Nord Stream 2, the gas pipeline between Russia and Germany, was back in use. You described it as too great a financial investment to simply abandon on either side. And now the pipeline has been sabotaged, with plenty of people believing that Russia was the likely culprit. Do you think the West is now decoupling from Russia permanently?

AT: Yeah, I was wrong about Nord Stream 2. Not the only thing I’ve been wrong about this year. What I totally underestimated was just the reckless violence and self-harming tendencies of Russian President Vladimir Putin’s regime. I think it is pretty much clear now and a done deal. It seems very difficult to conceive of how Europe would ever turn these pipelines back on again. I really think we are looking at a kind of permanent uncoupling, in fact, as far as Germany is concerned. It’s already happened, right? So September this year was the first month since the 1970s that Germany has effectively done without new Russian gas supplies. The share of Russian imports in Europe’s total imports of gas have fallen from 41 percent to 9 percent in the course of a single year.

To think of it as a kind of resumption of the Cold War may be useful. If you go back to the beginning of the Cold War, there wasn’t a lot of trade going on. West Germany was in an extremely hard-line position vis-à-vis the Soviet Union. And if one was to be facetious, you know, a return to the Cold War era would, in fact, solve Europe’s problems, specifically with regard to temperature regulation. If Europe is at once to very substantially reduce its import deficit of gas, all it really needs to do is turn the thermostats down from an average of 22 degrees centigrade [71.6 degrees Fahrenheit] to 19 degrees centigrade [66.2 degrees], which would hugely slice and cut back on its import dependance. Some historical studies have shown that, in the early 1980s, households in the U.K. were heated to only 16 degrees centigrade [60.8 degrees]. And I vividly remember shivering and, you know, wearing a pullover inside in that period in drafty English houses.

CA: I didn’t mean to suggest in all this that the United States is immune from Russia’s influence over energy markets either. The latest news is that Russia and Saudi Arabia, the leading players in the oil cartel OPEC+, have announced a plan to limit their output of oil to the tune of about 2 million barrels a day. In general, U.S. politicians love to tout that the U.S. is the world’s biggest producer of oil and gas. But does this show that it’s kind of impossible to really be energy independent?

AT: Yeah, this is a really interesting question, because this idea of energy independence is so seductive. I think, for the Europeans, it’s the fantasy on the far distant horizon in case they manage to do the renewable energy transition. But for the U.S., it’s really a kind of abiding fantasy. And it really depends on a complex array of factors, whether you are de facto independent or not—on political choices, on corporate strategies and physical infrastructure.

And there’s a really interesting contrast here between gas and oil, because in gas, the United States is de facto independent. Why? Because it has a huge volume of fracked gas that’s being produced and because only a small portion can be exported.

When it comes to oil, America is bound into a forcefield that is dominated by the two other big suppliers, Saudi Arabia and Russia, which have been organizing this complex OPEC+ cartel. And what we’re seeing in the current moment is the Biden administration’s desperate efforts to corral the Saudis into not engaging in this reduction in production, which the Saudis are now aiming for, so as to continue to supply American consumers of petrol and oil through the U.S. midterm elections at least. This is a Democratic administration quite transparently, I think, engaged in global electioneering by way of muscling the OPEC cartel. The interesting thing is the Saudis aren’t listening. The Saudis have just gone ahead and announced this cut.

CA: It seems as if the European governments have focused their initial policy response to this crisis more on helping out households rather than industries, which are also facing higher energy and heating costs. So I’m wondering, are there likely to be waves of industrial bankruptcies this winter and in the winters to come? And if that is the case, what sorts of industries are most likely to be affected?

AT: It’s important to emphasize, it can hardly be said that the interests of European businessmen are neglected, because Europe’s governments refused to impose any one-sided massive energy or gas import boycott on Russia. They just wouldn’t move because they knew they would get huge pushback, notably from the most powerful lobbies in Germany, on that issue. But now the situation is really very severe—there’s no question at all. And all of those factors come into play. The size of businesses, their location, the scale of national government budgets—it is going to be more and more decisive because we are now talking about huge subsidy programs.

So Germany and the U.K. have both now passed energy price support budgets, which run to the tune of 5 to 6 percent of GDP. So that’s like two times the Pentagon budget in the United States. These are huge programs, which have been decided in very short order. And this is going to play out business-to-business, consumers-versus-businesses, regions-versus-each other. And it’s going to play out in government-against-government. So recently, the German government announced a giant, 200 billion euro [$195 billion] program to subsidize energy consumption in Germany. And this has produced a storm of outrage in the rest of Europe because if Germany subsidizes energy consumption, that will drive up demand for individual prices for everyone else, and Germany is the biggest consumer in Europe. And also because Germany didn’t even think apparently to coordinate this with anyone else in Europe. And it’s quite clear that if the European states get into a competitive bidding war for energy subsidies, Germany, with a relatively strong balance sheet, is going to come out on top. So if Europe is serious about avoiding fragmentation, which was one of the key arguments in 2020 over COVID-19, then at some point there has to be a serious conversation about fiscally balancing these claims. It’s mind-boggling to me that this was not apparent to Berlin four to six weeks ago.

CA: So how does Europe’s energy crisis response until now line up with its climate goals? Could Europe have been more concerted in using this crisis as an opportunity to advance its climate policies? Could it have poured some of the hundreds of billions of dollars that are going into price controls into renewable investments, for example?

AT: Yeah, we shouldn’t gild the lily here. There’s no doubt this is a disaster. Europe was embarked since 2020 on an accelerated energy transition. And this forces Europe backward into rebuilding and investing in fossil fuel infrastructure. You know, the spending on the LNG terminals is going to run through about 10 billion euros [$9.7 billion]. And then on top of that, of course, the gas is going to be imported. So you are building infrastructure there, which on any optimistic assessment of the energy transition will be not be needed 10 years from now. In the meantime, you’re providing direct subsidies to consumers to continue their consumption of fossil fuels—and not just for gas either. I mean, the French support program includes 7 billion euros [$6.8 billion] for drivers for petrol and diesel.

All told, the estimate is that Europe is going to sink about 50 billion euros [$48 billion] into various types of subsidies for continued fossil fuel consumption. I think we have to recognize this is frankly a rather tragic situation, that there really aren’t obvious alternatives. I mean, it’s not just an economic crisis—it’s a flat-out social crisis that Europe is facing. We haven’t mentioned the term “fuel poverty” or “energy poverty,” but that’s what’s going on here. Lower-income European households, without these subsidies and without these interventions, would be facing, by European standards at least, really manifest and serious deprivation over the course of this winter. We should expect a spike in excess mortality. So governments had to respond.

But we should be clear about the fact that this is really, from the point of view of climate politics in the short run at least, a serious, serious setback. In the long run, I think it will energize the transition. But we actually have to see action on that front. And this is not the moment to expect it on a large scale because the fiscal demands are huge.

CA: That brings me to my final question, which is whether this is the widest gap you can recall between the economic experiences of people living in Europe and the United States. We’re facing years of energy crisis in Europe, with all the strained public finances, the struggling households, the bankrupt businesses that we’ve been talking about. And it seems as if there’s really nothing of that kind being discussed in the United States. Obviously, there are economic problems, there’s inflation, but not really this feeling of crisis—and we’re facing potentially a decade of this kind of material gap. Is there the chance of a growing political drift between the continents, too?

AT: I completely agree with you, having traveled back and forth a fair amount in the last couple of months. You know, if you sit and watch Germany’s late-night political talk shows, these super sophisticated talk shows, they are entirely dominated by this issue—it’s every single night a rolling barrage of argument and a sense of panic.

I was rolling this around in my mind, trying to think of any parallels. I think you could point to the eurozone crisis, 2010 through 2015, where you also saw fairly serious divergence. But there’s a slight difference here in the sense the eurozone crisis was almost like an extension of a common crisis. It originated in a common problem.

And I think what makes the current situation so divisive is that this crisis puts Europe and the United States in structurally different positions. I mean, the Europeans are so much closer to the war and the Americans are so deeply involved on the military side. This creates a tension between the European and the American position with regard to the entire war. And more relevantly, it just exposes the huge difference between America as not just self-sufficient but as an energy exporter and Europe as a major energy importer. And I think what this does is to amplify the sense that one already had over the last couple of years, that as the energy transition and as climate politics begins to bite, the paths of Europe and the United States really begin quite fundamentally to diverge. I’ve even at points toyed with the idea that we’re going to need a kind of Euro-American détente to get over these fundamental and structural differences because at some point we have to stop pretending that we’re on the same path and recognize that these are fundamental and entrenched differences.

Cameron Abadi is a deputy editor at Foreign Policy. Twitter: @CameronAbadi

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