Europe's energy crisis is about to get a whole lot worse as the Northern Hemisphere winter is just weeks away. New risks are emerging across the continent that households and companies might have to scale back on power use or even plan for rolling blackouts.
There is no immediate fix to the energy crisis that comes from the supply side, with Russia's Gazprom, the largest supplier of natural gas to Europe, only pumping what it has. At the same time, EU stockpiles remain well below trend.
On Tuesday, Prime Minister Mario Draghi said Italy's government is ready to combat soaring energy prices for households, according to Bloomberg.
"We set aside 1.2 billion euros ($1.4 billion) in June and over 3 billion euros in September," Draghi said. "We are now taking steps in the budget and are prepared to continue doing so, with particular attention to the most vulnerable."
"Given the current energy supply system, a blackout cannot be ruled out" across Europe, Minister Giancarlo Giorgetti said, adding that "it's important to neutralize the impact of increased energy bills on households and companies in the fairest way possible."
Even before the winter season arrives, cold weather is driving energy prices across Europe to record highs. The massive rally in European gas prices is not diminishing anytime soon. Gas prices at the Dutch TTF hub, the benchmark gas price for Europe, jumped to €100 per MWh, adding more pressure on households who are already dealing with rapid food and shelter inflation.
Just yesterday, power prices in France jumped to the highest levels since 2012.
The long-awaited activation of Gazprom's Nord Stream 2 pipeline from Russia to Germany would ease the natural gas crunch. Still, the project continues to hit regulatory snags from German regulators who recently suspended the certification process of the pipeline. What this could mean is flows might not start until spring.
Gazprom's finance unit head, Alexander Ivannikov, pointed out in an investor call on Monday that forward natural gas contracts "do not imply a noticeable decline in prices in the coming months." He said low levels of gas injections in European gas storages and colder weather would keep a bid under prices.
What's great for Gazprom is disastrous for Europe as higher gas prices appear to be sticking around as the Northern Hemisphere winter is just three weeks away. Ahead of winter, Bloomberg's weather forecasts show average temperatures to trend below a 30-year average for the next two weeks.
Nicolas Goldberg, a senior manager in charge of energy at Colombus Consulting in Paris, laid out one scenario where a cold snap plus no wind power generation could strain the European power grid.
"If there's a deep cold snap and there's no wind, things could become tight given the lesser availability of nuclear plants and the recent closure of dispatchable generation assets using coal, Goldberg said. "If it's getting really cold and there's no wind, it may become a problem."
Other energy analysts have warned of power grid woes. Jeremy Weir, chief executive officer of Trafigura Group, a Swiss commodity trading house, said rolling blackouts are possible across the EU.
"If the weather gets cold in Europe there's not going to be an easy supply solution, it's going to need a demand solution," said Adam Lewis, partner at trading house Hartree Partners LP.
EU officials don't want to admit it publicly, but they need Russian gas to prevent rolling blackouts and control energy inflation. Failure to do will result in a 'winter of discontent.'