Climate Change Saved Europe From Putin This Winter
Climate change has kept Europe warm enough this winter to save it from Russian President Vladimir Putin’s energy crisis, but the respite may prove fleeting if—perhaps when—those same climate changes cause a crisis this summer. A warm and dry winter usually means a hot and dry summer, and Europe’s short-term relief could keep the continent from preparing for the next wave of energy crunches.
Last year saw record breaking heat in much of the world, and a winter as historically mild as this one does not bode well for Europe’s coming summer temperatures. With less winter snow and thus less snowmelt, plus hotter and dryer weather leading to greater evaporation and higher electricity consumption for cooling, summer 2023 could roil European and global energy markets once again and then leave Europe ill prepared for next winter.
The immediate effect of a mostly snowless and warm winter on the probable summer energy situation is constrained electricity generation. In 2022, severe droughts across Europe caused a massive decrease in water levels in rivers and lakes. For example, Portugal’s reservoirs were at only 29% capacity no further into summer than the end of July 2022. Many others across Europe dropped so low that hydroelectric plants couldn’t operate fully, or at all. Spain’s hydroelectric generation dropped over 53% and major hydro plants were forced to close. Italy’s declined by 37.7%. France’s power production overall hit an all time low, with hydroelectric shortfalls at 22% due to equally record low water levels. This is a mere sampling.
Water levels matter for keeping the lights on. In 2020 and 2021, hydropower was approximately 17% of the E.U.’s electricity. If this summer even just approaches the heat and dryness of 2022, Europe could lose double-digit generation capacity. And, of course, Europe enters this summer with water levels still devastated by last year. The forecasts, meanwhile, are that it will be hotter than last year. The U.K.’s official weather service, the Met Office, expects the La Niña cooling pattern that has been in effect the last three years to lift, leading to higher global temperatures. Others agree. But even if it is not hotter, it will be dryer because of the record low snowfall so far this winter.
Hydropower is not just important as generation capacity, however. It also provides grid stabilization services because it can be more flexible—“dispatchable,” meaning available on demand—than other types of power. This is because a dam can be opened or closed at will to release water from the reservoir behind it, whereas other power sources require fuel or cooperative weather. This on demand potential allows for storage services, similar to a battery. Hydropower is thus more reliable than wind or solar or fossil fuels, and also cheaper than all other sources of electricity. Losing this price advantage, grid stabilization, and the dispatchable generation hydropower offers will raise electricity prices and lower grid efficiency in Europe.
Meanwhile, the consequences of low water levels affect other power generation, too. Nuclear power, for example, requires water for cooling. When water levels get too low, nuclear generation can become risky. France, which usually gets over 70% of its electricity from nuclear, had to reduce some nuclear plants’ output in 2022 because of the drought (and others due to maintenance). So, too, can drought depleted rivers hurt coal generation. Fewer coal barges can traverse Europe’s waterways when there’s no water in them. In 2022 Germany, among others, had to close some operations at coal power plants due to coal shortages caused by shipping constrictions from river shrinkage.
In turn, lower hydroelectric, nuclear, and coal generation means more natural gas must be burned to make up the difference. Wind and solar can partially compensate, but how much depends on the weather. Even at full capacity these renewable sources together only account for roughly 25% of the bloc’s total current mix. Thus, although European gas storages are at present at record highs due to frenzied 2022 purchases and the mild winter, climate change’s equally extreme impact on summer could force Europe to burn enough gas to deplete its current surplus, and just before next winter. Power consumption spikes from cooling demand during heat waves will contribute to this.
What exact effect this will all have on energy prices and market stability is hard to predict, but considerable volatility and at least some price hikes are more than likely. The extent of these will depend on how short the world is on natural gas, oil, coal, and other fuels, and of course the weather—plus any unforeseen emergencies or crisis, such as if labor strikes blossom anew at France’s nuclear power plants, or if Putin is assassinated, or if China invades Taiwan.
Other variables at play include how fast China gets its industrial sectors back up and running after years of COVID-19 lockdowns, with Chinese reemergence expected to put huge demand strain on global energy commodities. Europe’s 2022 success at reaching its natural gas storage targets despite Russian export cuts and the continent’s own bans on Russian energy was mostly because China remained closed. This reduced global demand, allowing Europe to hoard LNG, albeit at astronomical cost. In 2023, China’s reopening will divert much of the global liquified natural gas (LNG) trade away from Europe and spike prices worldwide, so Europe may struggle to replace gas burned this summer.
Another question is whether Saudi Arabia and other OPEC countries reduce, maintain, or increase crude oil production in 2023. These decisions are made to keep prices up by restricting supply, the obvious impact of which is on oil prices specifically, but with knock on effects on other energy supply chains. OPEC cut production in October 2022 for all 2023, citing “a time of heightened uncertainty and rising challenges, amid ongoing high inflation levels, monetary tightening by major central banks, high sovereign debt levels in many regions as well as ongoing supply issues.” Any further adjustments in 2023 could shock markets. Such a decision, while not expected, could rest on what Russia does.
That’s the third big unknown, whether the Kremlin responds to the western world’s various sanctions and price caps on Russian energy products by further restricting production or redirecting exports. If it does, the ensuing energy crunch—no longer a crisis, because Putin has already lost the energy war—could unsettle energy markets again because Europe is still importing over 17 billion cubic meters (bcm) equivalent of its LNG from Russia. In fact, Europe imported 12% more Russian LNG in 2022 than in 2021. There is as yet no European ban on Russian LNG. The continent is also hooked on Russian diesel, although a ban on refined oil products from Russia will take effect February 5, 2023. The U.S. cannot compensate for the end of Russian diesel due to refining capacity, and new Middle East refineries won’t come online before 2024, so some market turmoil should be expected. Each of these presents a potential pressure point for Putin with which he could squeeze global energy markets further.
Russian oil is also at play. India and China in particular are buying lots of Russian crude oil as well, and Russia is now mostly reliant on them as energy customers. Against this backdrop, the $60 western price cap on Russian crude appears on its face to be working, because most Russian oil is selling below that threshold. That could trigger Moscow to cut production in spite, or to maintain or increase it to try to make up the budget shortfall. Deeper analysis of the price caps, however, suggest that they aren’t actually affecting Russian energy profits much because different crude is sold in different global markets. Either way, predicting Putin’s energy aggressions gets no easier.
What is certain is that energy and other commodity shortages will continue globally into 2023, and probably into 2024 if not beyond. With supplies stretched thin, any surprise, emergency, strike, major storm, accident, or other unforeseen event will rattle markets. Prices for electricity will oscillate unpredictably, as will those for input fuels like natural gas.
Although Europe outmaneuvered Putin this winter, ironically aided by the climate change catastrophe it has pledged to flight and to which Russian fossil fuels have greatly contributed, the next 12 months may prove no easier regardless of whether the Kremlin still has much energy leverage. This winter’s gentleness will be something Europe comes to view as a double edged sword if the coming summer follows the trend of record breaking temperature highs. While the continent won the climate change lottery this winter, the odds of it winning twice in a row are low, especially when a second win hinges on the improbable retreat of that same climate change momentum.
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