"Energy Crisis Triggered by Ukraine War to Last Until 2026"

Russia reduces gas supply... China lifts lockdown, expects 7% increase in gas imports next year
Government's financial support capacity for households and businesses is limited
"Energy prices surged after Ukraine war... Europe’s damage alone amounts to $1 trillion"

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Haeyoung] An analysis has emerged estimating that the damage caused to Europe due to the surge in energy prices following the Russia-Ukraine war has reached 1 trillion dollars (approximately 1,310 trillion KRW). With Russia reducing gas supplies and the surge in energy demand from China after lifting COVID-19 lockdowns, the global competition for securing energy resources is intensifying, raising concerns that the energy crisis may persist until 2026.

According to Bloomberg on the 18th (local time), energy prices have skyrocketed since the Ukraine war, causing estimated damages of about 1 trillion dollars to consumers and businesses.

Bloomberg stated, "The 1 trillion dollar energy bill is just the beginning of the crisis," adding, "Global gas price instability is expected to continue until 2026, with energy price surges persisting for years to come, and governments will find themselves unable to provide further support."

The European Union (EU) has been focusing on energy stockpiling since last summer, making progress in reducing dependence on Russian natural gas this winter while filling gas storage facilities. The problem lies in next winter. Although gas reserves that have decreased need to be replenished, Russia continues to reduce gas supplies, and additional liquefied natural gas (LNG) production from the United States and Qatar is not expected until 2026, meaning supply shortages are likely to persist.

The International Energy Agency (IEA) analyzed that although the EU has already suppressed gas demand by about 50 billion cubic meters, if Russia completely shuts off gas pipelines to Europe and China's LNG imports return to 2021 levels, demand will need to be further reduced by 27 billion cubic meters next year.

In particular, competition is expected to intensify as Asian countries, including China, increase gas imports. China’s gas demand decreased this year due to economic contraction caused by COVID-19 lockdowns, with the reduction amounting to 5% of global supply, which helped stabilize global gas prices to some extent. However, according to the Energy Economics Research Institute of China National Offshore Oil Corporation (CNOOC), China, having started lifting lockdowns, is expected to increase LNG imports by 7% next year compared to this year. Additionally, other Asian countries such as Japan are also stockpiling gas, which is likely to heat up the energy securing competition.

The limited fiscal capacity of governments is also cited as a problem. European governments have provided over 700 billion euros (approximately 970 trillion KRW) in support by the end of November to alleviate the burdens on households and businesses struggling with rising energy prices. By country, Germany provided the largest government support amounting to 246 billion euros (about 340 trillion KRW), equivalent to 7.4% of its GDP, followed by the United Kingdom (97 billion euros, 3.5% of GDP), Italy (90.7 billion euros, 5.1% of GDP), France (69.2 billion euros, 2.8% of GDP), the Netherlands (43.9 billion euros, 5.1% of GDP), and Spain (38.5 billion euros, 3.2% of GDP). As a result, about half of the EU member states have faced situations where government debt exceeds the fiscal rule limit of 60% of GDP.

Bruegel, a European think tank based in Belgium, stated, "Government support amounting to 700 billion dollars has helped absorb the impact on businesses and consumers, but the emergency will last for years," adding, "With interest rate hikes and economic recession becoming visible, such support will become increasingly difficult to sustain." Martin Debnish, director at consulting firm S-RM, said, "When combining bailouts and subsidies provided by governments, the amount is enormous," and predicted, "Next year, it will be even more difficult for governments to manage the crisis."

This content was produced with the assistance of AI translation services.