"Global Energy Crisis Triggered by Ukraine War to Last Until 2026 (Comprehensive)"

Russia reduces gas supply, China lifts lockdown
China expects 7% increase in LNG imports next year compared to this year
Bloomberg "Energy price surge expected to cost Europe $1 trillion"

[Asia Economy Reporter Kwon Haeyoung] With Russia reducing gas supplies and the surge in energy demand from China after lifting COVID-19 lockdowns, a global energy scramble is intensifying, raising concerns that the energy crisis could persist until 2026. This grim outlook comes amid estimates that Europe alone has suffered damages worth $1 trillion (approximately 1,310 trillion KRW) due to soaring energy prices following the Russia-Ukraine war.

Bloomberg reported on the 18th (local time) that consumers and businesses have incurred damages estimated at around $1 trillion due to soaring energy prices after the Ukraine war. Bloomberg stated, "The $1 trillion energy bill is just the beginning of the crisis," adding, "Global gas price instability will continue until 2026, with energy price surges persisting for years, and governments will find themselves unable to provide further support."

The European Union (EU) has been focusing on energy stockpiling since last summer, achieving progress in reducing dependence on Russian natural gas this winter while filling gas storage facilities. However, the real challenge begins next winter. Bloomberg expects that gas reserves, which have decreased, will need to be replenished, but with Russia cutting gas supplies and additional liquefied natural gas (LNG) production from the U.S. and Qatar only becoming available by 2026, supply shortages are likely to continue.

In particular, Russia has weaponized energy by shutting down the Nord Stream natural gas pipeline to Europe in September under the pretext of repairs, in response to European countries supporting Ukraine and condemning Russia.

Bjorn Shieldrop, Senior Commodity Analyst at Swedish bank SEB AB, said, "Securing gas is indispensable, and widespread hoarding will be witnessed across Europe," predicting, "Competition to secure natural gas inventories will intensify, resulting in a seller's market lasting at least 12 months."

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

Especially if Asian countries including China increase gas imports, competition is expected to become even fiercer. 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. 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, Japan, the world's largest LNG importer this year, is also expected to join the energy scramble in Asia by considering strategic stockpiling and government subsidies.

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 burden on households and businesses struggling with rising energy prices. By country, Germany provided the largest support amounting to 246 billion euros (about 340 trillion KRW), equivalent to 7.4% of its GDP. This was followed by the UK (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 exceeded the fiscal rule standard that government debt should not surpass 60% of GDP.

According to Bloomberg, gas futures prices in Europe peaked at 345 euros per megawatt-hour (MWh) in July and have since declined, averaging 135 euros this year. If supply-demand imbalances cause gas prices to surge to 210 euros, gas import costs could approach 5% of GDP. Given that the current mild recession could deepen into a severe downturn, there are calls to reduce government support accordingly.

Bruegel, a European think tank based in Belgium, stated, "Government support amounting to $700 billion has helped absorb the impact of soaring energy prices on businesses and consumers, but the emergency will last for years," adding, "With interest rate hikes and recession becoming apparent, governments seem increasingly unable to sustain such support." Martin Devnish, 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.