08-12-2022 11:48

All you need to know about the energy crisis

Europe’s ongoing energy crisis is in focus in the latest Nordea On Your Mind podcast.
Winter night in Gothenburg City

Johan Trocmé and Viktor Sonebäck, the brains behind Nordea On Your Mind, discuss several aspects of the energy crises in their latest podcast, “Never waste a good energy crisis”

First up in the discussion is the Nordic electricity system and why it is uniquely clean, efficient and cheap. It turns out all four Nordic countries have lower CO2 emissions than the European average, notes Sonebäck.

“Over half (of Nordic electricity) comes from hydro power, only 5% from fossil fuels, and 18% is from nuclear, built out in the 1970s after the OPEC I and OPEC II oil shocks,” he explains.

The Nordic electricity system is connected to that of its neighbours, the UK, Netherlands, Germany, Poland, Estonia and Lithuania. Electricity is traded across borders, and the Nordic region is a net exporter to Europe of 9% of its electricity output. 

Could the Nordic region take advantage of its strong electricity system and close its borders to electricity trading? No, explains Trocmé in the podcast. EU members have to make at least 70% of their output available to the market. The EU has a target for 15% interconnection between member countries, recently raised from 10%.

Impact from the war in Ukraine

Russian gas imports to Europe are dramatically down following Russia’s invasion of Ukraine. The resulting high gas prices are spilling over into higher electricity prices, also in the Nordics. The impact is big as Russia represented 43% of gas imports and 54% of coal imports to Europe, together representing 16% of Europe’s electricity generation.

“Russia used to account for 40% of Europe’s gas imports, but that is now down to 8%. The rest is now roughly 40% Norway, 10% Algeria and 40% LNG (liquefied natural gas),” says Trocmé. 

Europe is now well prepared for the winter, having replaced lost Russian gas imports with expensive LNG. Gas storage levels are now at 94%, actually higher than this time last year. But the high energy prices are driving inflation.

“The Nordea macro view is that this will be reasonably transitional – an inflation spike which eases in 2024, with a similar development for interest rates. But there are risks,” says Sonebäck. 

The OECD describes a risk scenario with a cold winter, which would quickly eat up gas reserves, reducing Europe’s GDP growth by 1.3 percentage points and raising inflation in the region by 1.4 percentage points.

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Explore more articles on Nordic energy supply

Is there a way out of Europe’s big energy crisis? What will the next steps be for the world-class electricity systems in the Nordics? Energy supply in the European and Nordic markets is front and centre in the latest Nordea On Your Mind.

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