Europe Gets a Warm New Year Gift to Tackle the Energy Crisis
Europe is heading into the hottest January in decades, a boon for politicians, consumers and central bankers alike as they get some relief from a bruising energy crisis.
The mild weather which ended 2022 is likely to spill into the new year, and send heating demand to below the 10-year average, forecasters say. That could help nations send even more gas into storage — an unusual thing for the middle of winter — and help keep stockpiles relatively full for when it’s time to replenish them again for next year.
That would be a huge relief for almost everyone in Europe after what was a brutal 2022. Gas and power prices had surged to records, driving inflation to the highest in years and bringing economies to the brink of recession. Central banks have been forced to hike interest rates in an attempt to quell prices.
But price pressures are easing for now. Benchmark gas closed at the lowest since October 2021 on Wednesday, and is at about half the average level of 2022. Power prices have also declined sharply. Gas inventories are fuller than normal, while imports continue to be strong.
Inflation in France and Germany slowed last month. Data due on Friday for the entire euro area is also expected to show a slowdown, which will be a respite for the European Central Bank. As yesterday’s blog pointed out, the British government’s energy subsidy bill could drop by tens of billions of pounds from April as gas prices decline.
Still, it’s not yet time to fully celebrate because the energy crisis is far from over. The weather could turn quickly, and bring back all the concerns about blackouts and draining stockpiles too quickly. Despite predictions for a warm January, temperatures in the Baltics and parts of the Nordics could drop below normal in the next few days. Britain could also see “some colder interludes,” said Nicola Maxey, a Met Office meteorologist.
Then there’s the risk with Russian shipments. Pipeline flows to the EU from its previous top supplier are down around 80% compared with this time last year, and there is a real risk the remaining shipments will be halted, according to a report by the bank ING. While LNG imports have been high, and countries like Germany and Italy are boosting purchases from elsewhere, replacing the volumes from Moscow is going to be difficult.
Adding to it all, while the warm weather has been a blessing, the unusual heat has also raised concerns about climate change. It shows the work needed by governments to quell the energy crisis, without having to depend on a warming world.
But for now, cities across Europe are enjoying the balmy weather. Temperatures in Berlin reached 16C (60.8F) on New Year’s Day, a January record, while the Czech Republic registered its warmest ever New Year’s Eve. France and Germany are forecast to range between 2C to 5C above normal through to the middle of this month.
“The first half of the month could rank among some of the warmest on record over the last few decades if things unfold as expected,” said Matthew Dross, a meteorologist at forecaster Maxar Technologies Inc.
—Rakteem Katakey
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