energy emergency

The reference price of gas in Europe has risen 30% in the last two weeks up to €130/MWh. The Freeport blender plant in Texas had an accident and is out of service. 20% of US gas exports left through that plant and the majority went to Europe. As long as that plant is not started up again, the price tension in Europe will continue. Now it is summer and the demand for gas is lower, but it slows down the ability of countries to rebuild inventories for the winter. As there is more supply in the US, the price of gas 30% has collapsed there to levels prior to the invasion of Ukraine.

But the most worrying cause is that Putin has cut much of the gas supply to Germany by the Nordstream pipeline. Last Friday’s European Summit was mainly devoted to Ukraine and the energy that is cause and effect. The Commission has been entrusted with coordinating a European emergency plan, flexible so that it can be adapted to countries with very heterogeneous electricity markets.

The German economy minister went on television and told the Germans that gas is a scarce commodity and that they spend at energy emergency alert level 2. Europe is at war with Russia, although we Europeans watch the war on television. But we are experiencing things that many decades ago did not affect us. Putin continues to advance in the south of Ukraine and he only has to conquer Donbass to close access to the sea, which would make Ukraine an unviable economy that could not export its large food production. When the war is over, it will still need Russian oil and gas to survive for many years.

After the fall of the Berlin Wall, European Realpolitik was based on two pillars: depending on Russian gas as a backup for wind and solar energy in the climate transition and depending on Chinese imports for a large part of the consumer shopping basket and the value chains of industrial companies. The two pillars have fallen with the pandemic and after Putin’s wild and illegal invasion of Ukraine.

Europe has to reinvent itself and reduce its dependence on China and Russia, which have shown not be two reliable partners. The US is leading the war in Ukraine but they have gas at $6 and they are self-sufficient. We Europeans will depend on Putin for years and we have gas at 130 euros. And in Africa there is already a shortage of food and what arrives at prices that are inaccessible to the majority of the population. What we saw last Friday at the Melilla fence is just the tip of the iceberg of what is to come next year. 18 Africans died They were fleeing poverty and the war is increasing it. Rest in peace.

time is one determining variable in economics, as John Keynes taught us in 1936. His teacher Alfred Marshall, in 1890 defined the short term when no production factor can be changed, the medium term when only part of the production factors can be changed and the long term period when all the factors of production can be changed.

Europe have a well-defined long-term 2030 Agenda that must be maintained as the renewable energy development, including green hydrogen, would provide security of supply and reduce dependence on Putin to a minimum. But as Keynes sentenced; “in the long term, all dead”

Putin has caused chaos but the US and Europe are not facilitating a way out.

European leaders have activated a short-term emergency plan, but the medium-term plan the new geopolitical reality must be adapted. They want to reduce the gas emergency while they send weapons to Ukraine to prolong the war and open the doors for them to enter the Union. It’s like sipping and puffing at the same time.

Wars are a prisoner’s dilemma, and the optimal solution to the dilemma is cooperative. Putin has caused chaos but the US and Europe are not facilitating a way out. And when you don’t let the bull out, it hits your femoral. It is the moment of diplomacy as requested by Henry Kissinger. A ceasefire in Ukraine would leave scars for decades, like in North and South Korea. But I’d stop this Marx Brothers cabin we’re in. That would be compatible with protecting Ukraine under the umbrella of the European Union and maintaining a strong and belligerent position against Putin to prevent him from invading more Ukrainian territory or more countries already members of the Union.

In the medium term, we must flee from the story and move on to the facts. As a matter of principle, no control panel can be disconnected without having a safe alternative already installed. The cheapest way to produce electricity is the sun and the wind and the main threat at the moment is bureaucracy. In Spain there are hundreds of wind and solar plants that have already had the money to make the investment for years but they lack some administrative authorization from the ministry, the autonomous community, the city council or a local court.

The next priority is not to make mistakes derived from social pressure. Australia made the same mistake that Minister Teresa Rivera and her advisers intended. Given the rise in electricity prices, put a legal cap on the price without any compensation. They have been shutting down gas plants for two weeks because the price does not cover the cost of producing. This lesson is the first thing we teach economics students the first day they arrive at college.

Fortunately, in Spain we are in Europe and the European Commission pressed for the Spanish gas cap to be well designed. Supply and demand meet freely in the market and when the price exceeds a level, an automatic compensation is generated so that the gas plants work. The gas companies, not the electricity companies, charge that compensation that we pay among the majority of consumers. That will avoid repeating the system that the PP designed in 1997 to artificially lower inflation and be able to enter the euro and that later ended up generating a huge tariff deficit that our children will pay in public debt.

Pedro Sánchez traumatized after the collapse of his party in Andalusia, which is beginning to infect the polls throughout Spain, has reacted with measures to lower VAT again and give a check to the most needy families. two good steps but they will not solve the energy crisis. Aware of this, he returns to look for energy companies as a scapegoat announcing a tax that he has not given any details about.

And Núñez Feijóo who sees how without doing anything he rises strongly in the polls, is letting himself go like Rajoy in 2011. He has been in Genoa for four months at the helm of the PP and nobody knows what he thinks of the energy crisis. If Sánchez were not in Moncloa tomorrow and he would arrive, the crisis and the problems of the Spaniards would be the same. And it’s no longer worth the milonga that the PP manages the economy well. The rescue they requested in 2012, their massive tax increases, their labor reform and their brutal cuts in public spending caused a million Spaniards to lose their jobs that year. And its tax on the sun and breaches of international contracts caused Spain was a non-investable country and we lost five years in the energy transition that today would have greatly reduced our dependence on gas and the price of electricity.