Market commentary by eToro analyst for Romania, Bogdan Maioreanu
The Russian announcement that the natural gas supply will not resume on the Nordstream gas pipeline puts Europe in front of a harsh reality. With reserves filled ahead of expected limits for this period, but still not full, there are several measures that politicians and the general public will have to take in order to pass the winter.
Natural gas storage in Romania is currently estimated at 33 TWh and is 75% full according to the latest dataset on European gas reserves. Germany sits at 86%, France at 93%, Austria at 68%, Hungary at 65%, Poland is close to 99% and the Czech Republic is at 83%. How Europe will reach the spring depends on how harsh the winter will be, how we will decrease consumption and how the European Union will ensure alternative supply to the Russian gas.
An analysis of the think tank Bruegel is highlighting the measures that the EU should take to cope with the gas supply crisis. Countries should start with acknowledgement that the risk of not having enough energy to meet societal needs represents Europe’s greatest short-term systemic risk, both economically and politically. Agreement between member countries is of existential importance to the EU. Member countries should commit to mobilize available energy supply, actively discourage energy demand, not divert cross-border energy flows and compensate the most vulnerable consumers.
Bruegel considers that all countries must honestly and immediately bring forward every available supply-side flexibility to the European energy market. As examples, the think tank cites that extending the lives of nuclear plants set to close this year in Germany will have a calming effect on power markets. Also Dutch gas fields could substantially boost production. Temporarily reducing pollution and working-time standards would help markets readjust. And the EU must make some temporary trade-offs with social and environmental measures.
The analysis mentioned that agreeing to joint procurement of gas on international markets will reduce the risk that EU unity is undermined as member countries compete with each other for limited supplies. Joint procurement promises to reduce the financial and political cost of gas, and would allow the use of pooled gas volumes to provide energy to the most severely hit consumers. In order to pass the winter, this is not enough.
An analysis made by the International Energy Agency mentioned that in addition to the measures related to the supply side, changes at consumer levels are needed. Among these, speeding up the replacement of gas boilers with heat pumps. While this will likely push up the consumption for electricity generation, this increase will be lower than the overall amount of natural gas saved. Another measure is to encourage a temporary thermostat adjustment by consumers, estimating that average temperature in EU buildings is above 22 degrees Celsius currently. A temperature decrease will save an estimated 10 billion cubic meters for each degree while bringing down energy bills. Bruegel is urging countries to stop subsidizing direct consumption and move to subsidize energy reduction. Rules such as lower speed limits and reduced minimum temperatures in buildings will help.
Both IEA and Bruegel urge the EU to speed up the deployment of new solar and wind projects. Despite the current focus on fossil fuels, investment in clean energy technology and the associated infrastructure is an essential part of escaping the energy crisis and meeting the EU’s decarbonisation targets. For investors this is good news. Globally the renewable energy sector is projected to surpass 2 trillion dollars by 2025. This sector includes investments in wind and solar generation but also biomass, nitrogen, hydro, recycling and low carbon emission products and services.
Companies like Enphase (ENPH) active in solar including on the European market, Daqo New Energy Company (DQ), a manufacturer of polysilicon needed for solar panels, Ormat Technologies (ORA), an international geothermal and recovered energy power business, Drax Group (DRX.L) a renewable power generation company from the United Kingdom and RWE AG (RWE.DE), a company that generates and supplies electricity from renewable and conventional sources primarily in Europe and the United States, might be in a good position to capitalize on these future developments. In order to help investors navigate the renewable energy sector, eToro launched a smart portfolio called the Future of power that includes the above companies together with other leaders in the industry.
The current energy crisis is an opportunity for countries to invest in further connecting Europe’s energy grids, which will improve resilience to future shocks and facilitate a cost-efficient transition, considers Bruegel. One estimate is that the EU must double the pace of wind and solar deployment to meet its goals based on limiting global warming to 1.5 degrees Celsius.
Bogdan Maioreanu, eToro analyst and markets commentator, has over 20 years of experience in financial services and investments and a strong background in journalism. He held different Corporate Banking management positions in both Raiffeisen Bank and OTP Bank, before moving to business consultancy roles working for IBM Romania among others. Bogdan is an Executive MBA from Asebuss and Washington University.
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