Edging closer to winter 2022-23 in Europe

Neither Tory leadership candidate really wants to acknowledge what’s coming down the line for Xmas.  They’d much prefer to trade upbeat, positive-sounding stuff.  Boris sure as Hell doesn’t want it to be discussed: anything that goes tits-up will be the exclusive responsibility of Whomever Follows, because, hey, there was no delinquency on his watch.   The same reticence can be seen across Europe.  We mulled this over four weeks ago; but as I return from a short hol, evidently the prospects for winter still remain too scary for anyone to acknowledge in full detail.  I suppose we must credit Gordon Brown (not a man who ever got much credit from C@W, and who has much to atone for) for at least having a try.  Even he only talks about domestic energy bills, as if the energy itself is not at issue.  And what of the food?

At the time of writing, only Italy and Slovakia are receiving any Russian gas to speak of: supplies to Germany are down to a trickle.  The gas systems of Europe are so stressed and constipated as they try to replace this with ‘reverse-flow’ sources – LNG terminals to the west of Europe, pushing gas eastwards – that various technical limitations have been reached and there’s even spare capacity at UK LNG terminals right now: the amount we can onward-export via cross-channel pipelines is maxxed out.  The UK, and even more so, Spain (which is similarly well-provided with LNG terminals, but really can’t export much to France at all) are islands of ‘low’ (relatively low) wholesale gas prices.  Demand destruction looms across industrial Europe.  And it’s a really hot summer!

(Speaking of which, hot weather sends electricity prices up, too …)

Presumably, Putin is showing his hand, gas-wise, as early as this in order to give European politicians a low-impact (relatively low) demo of what’s to come.   If, despite the inclinations of France / Italy / Hungary / many German businessmen towards an “accommodation”, Europe actually has to wear this in winter 2022-23, the dynamics of world trade will be monumentally distorted.  To say nothing of the politics.  Ukraine may be planning a spectacular counter-offensive for the weeks to come, and China continues its firework display: but otherwise, all eyes are on Germany.  What will Scholz do?

ND