100 billion euros additional bill.. How does the Hormuz crisis threaten Europe's winter?

Dublin - Ofoq News - Europe does not face the risk of running out of oil and gas this winter as much as it faces the cost of obtaining them. Since the end of last February, European Union countries have paid more than 100 billion additional euros for energy imports, without obtaining additional quantities of oil or gas.

This comes at a time when the closure of the Strait of Hormuz and turmoil in global energy markets have kept prices at high levels.

In Dublin, European energy ministers met yesterday, Tuesday, to discuss the repercussions of the crisis and prepare for the winter months, while the European Energy Commissioner, Dan Jorgensen, warned that Europe is heading into a “difficult winter.”

Although a severe supply shortage is not expected, stocks and price levels present governments with a complex equation: How do they protect households and industry from a new shock in energy bills, while the continent is still exposed to oil and gas market turmoil?

"difficult winter"

Jorgensen stressed that the union does not expect supply problems, but expects “very high” oil and gas prices, saying: “There is no doubt that we are heading towards a difficult winter.”

He added: "In a normal winter, about 50 million people in Europe are unable to adequately heat their homes. This winter could be worse. So we take the situation very seriously, not to mention our industry, which is also under pressure."

Since the end of February, with the outbreak of war in the Middle East and the closure of the Strait of Hormuz, the fuel import bill for the 27 member states has jumped sharply.

The Danish Commissioner estimates this “additional energy cost” at more than 100 billion euros, without “a single additional molecule of gas or oil.”

Low inventories

The Commissioner does not expect a severe shortage, but notes that gas storage levels are “exceptionally low”: 70% on average in the EU, 82% in France, and only 57% in Germany and the Netherlands.

A group of experts follows the development of gas and oil reserves, and met yesterday, Tuesday, to evaluate the oil market, noting “high prices for diesel and aviation fuel.”

It noted that Amsterdam-Rotterdam-Antwerp trading hub inventories are below their five-year average, but appear stable in recent weeks, with European refineries operating near maximum capacity, leaving little room for price relief.

The upside: Emergency stocks remain at a high level and are available in the event of market turmoil.

Reducing consumption

In a letter to ministers before the end of the week, Jørgensen indicated that the situation is less dangerous than it was following the Covid-19 pandemic or the beginning of the Ukrainian war, thanks to Europe diversifying its sources of supply and developing renewable energies.

Therefore, Jørgensen believes that the appropriate target for gas storage could be lowered to 80% “to relieve immediate pressure on prices”, but he urged member states to take measures to reduce their consumption, especially at peak hours, better meter it, reduce the heating of public buildings, and reduce street lighting.

Electricity as a long-term outlet

The ministers unanimously agreed on the need to continue reducing dependence on fuel through electrification of needs, as the Finnish Minister of Energy, Sari Multala, indicated that her country has become 95% independent in electricity production thanks to renewable and nuclear energies.

As for Jorgensen, who is less enthusiastic about nuclear energy, he believes that the goal remains “clean energy independence.”

The European Union also granted its approval, on Tuesday, to disburse exceptional government aid worth 25 million euros to support French fishermen affected by the rise in fuel prices due to the Middle East crisis.

While several member states - Italy, Germany, Spain, Portugal, Poland and Austria - are calling on the Commission to take a position on a unified European tax on the excess profits of oil and gas groups, Jorgensen reminded of the possibility of taking action at the national level, without criticizing the initiatives of countries such as Ireland that are considering reducing taxes on fuel, while warning “not to waste public money.”

Methane rule postponed and diesel standards relaxed

The Commissioner, along with the Executive Director of the International Energy Agency, Fatih Birol, expressed his support for postponing the implementation of a regulation requiring fuel importers to document production-related methane leaks for a year, amid resistance from American producers to this European commitment.

The Commission is also considering another request by France to relax the stringency of diesel quality standards by incorporating more agricultural fuels, a relaxation that concerns environmental NGOs.

Added to this already tense context is a new concern: the vulnerability of electrical infrastructure to Russia's hybrid war against Europe, a topic that member states are currently working on.

Le Monde newspaper believes that the Dublin meeting reveals a difficult European equation: no expected shortage of supplies, but high prices and declining stocks in pivotal countries such as Germany and the Netherlands make next winter a real test.

While the Commission is betting on a combination of reducing consumption and accelerating investment in clean energy to reduce dependence on fossil fuels, the additional €100 billion bill incurred by Europe since the closure of the Strait of Hormuz at the end of February remains evidence that the cost of the war in the Middle East has exceeded the borders of the region and reached directly the heating bills of European homes.