Impact of excessive vitality costs on trade within the East Med area

Europe remains to be roiling beneath the influence of excessive vitality costs that don’t appear to be going away any time quickly. Dutch hub TTF pure fuel costs dropped to about €70/MWh on December 31 from the €180/MWh peak reached in October, however as winter sets-in they’re now again as much as €94/MWh. Even although it is a transitory phenomenon, it’s now anticipated that costs will return nearer regular ranges solely by the mid-2022 and to pre-pandemic ranges by 2023.

Their influence is being felt to various levels across the East Med area, however extra so in Greece and Turkey for fairly completely different causes.

Like the remainder of Europe, electrical energy costs for Greek customers skyrocketed to €416/MWh simply earlier than Christmas, compared to pre-pandemic ranges of about €160/MWh in 2019. This is essentially as a consequence of an elevated dependence on imported pure fuel, now at 40%, because of the fast phasing-out of lignite, historically used for energy era. As with the remainder of Europe, these are main the Greek financial system and trade right into a disaster, with the chance of derailing financial restoration if the disaster is extended. Greek Prime Minister Kyriakos Mitsotakis sees this as a “European problem requiring a European solution”.

At the December European Council Summit in Brussels, Mitsotakis put ahead proposals to handle rising vitality costs that included collective buying of pure fuel throughout the EU, however the Summit broke with out settlement on concrete measures to be taken.

In December Greece accredited additional will increase in subsidies for electrical energy and pure fuel for almost all of households, small enterprise and agriculture, first introduced in September. These might be funded partly from revenues from the nation’s emissions buying and selling system (ETS), but additionally from Greece’s Recovery and Resilience Fund. Nevertheless, getting into 2022, Greek trade is sounding the alarm concerning the results of massively elevated vitality prices, warning that with out additional assist some companies might quickly be pressured to shut.

Turkey introduced large will increase within the value of electrical energy, pure fuel and petrol that got here into impact proper initially of 2022. Electricity costs elevated by 50% for households and 125% for trade, whereas fuel costs have gone up by 25% and 50% respectively. These have attracted the wrath of opposition politicians, but additionally folks taking to the streets to precise their frustration at this newest blow to the nation’s financial system. With inflation surpassing 36% in December and the lira dropping 45% of its worth throughout 2021, Turkey’s financial system is in tatters. And it’s largely all the way down to ‘Erdogonomics’ – the extremely unorthodox financial insurance policies of Turkish President Recep Tayyip Erdogan based mostly largely on conserving rates of interest low.

Turkey’s almost full dependence on imported oil and fuel exposes it to the double-whammy of accelerating oil and fuel import prices, priced in {dollars}, whereas the lira is collapsing. This is although in greenback phrases, Turkey’s fuel imports are shielded by long-term oil-price-linked provide contracts.

The rising price of vitality imports can also be quick depleting its foreign-currency reserves. Developing its newly-discovered 540-billion-cubic-meter Sakarya gasfield within the Black Sea, anticipated by 2023, may present substantial aid. As is the drive to extend energy era from renewable sources, that now stands at 43%.

The international vitality disaster seems to have skipped Israel. The concern there’s that electrical energy costs might be rising by 4.9% in 2022 as a consequence of will increase in the price of imported coal. A far cry from the European and Asian vitality value maelstrom. At current 23% of Israel’s electrical energy is produced from coal, however this may cease in 2025. Over 70% of Israel’s electrical energy comes from utilizing pure fuel produced by its two big gasfields Tamar and Leviathan. Gas costs are fastened by long-term contracts and in the present day stand at $4-$5/mmBTU, shielding Israel from the vagaries of world vitality markets.

However, the vitality disaster is worsening circumstances in Gaza, with the hole between electrical energy demand and provide now estimated to be 75%, limiting electrical energy provide to only some hours per day.

Egypt can also be largely shielded from the worldwide vitality disaster. It is now self-sufficient in fuel, with costs dictated by the federal government. Energy and gasoline value rises are the results of inflation, now working at about 5.7%. Increased reliance on renewables and extra environment friendly combined-cycle energy era are additionally serving to.

The political and financial paralysis of Lebanon has led to an vitality disaster of gigantic proportions resulting in electrical energy blackouts and shortages of diesel and petrol which have paralysed the nation. An settlement between Egypt, Jordan and Syria, with US blessing, signifies that pure fuel must be provided to Lebanon by the Trans-Arab fuel pipeline to ease the electrical energy disaster throughout the subsequent three-months.

It is hoped that parliamentary elections in April and presidential elections in October will result in much-needed political change, however Lebanon has been there earlier than, with little to indicate. The Lebanese folks desperately want, and deserve, a greater yr – however will they get it? Omens are usually not good.

An entire reliance on oil merchandise for energy era has shielded Cyprus from excessive pure fuel costs. Nevertheless, its dependence on oil and the influence of excessive EU ETS costs have led large will increase in electrical energy costs inflicting hardship, particularly to low-income households. In November Cyprus decreased VAT on electrical energy payments for susceptible households from 19% to five% for six-months. But the federal government is now locked in a battle with parliament that voted a invoice decreasing VAT by 10% for all, together with trade. This might now be referred to its High Court.

But regardless of the vitality disaster, assist for vitality transition stays robust, with Greece focusing on to supply 61% of its electrical energy from renewables by 2030 – and nonetheless planning to phase-out use of lignite by 2028 – Israel by 30% and Egypt by 42%.

This disaster has strengthened the concept that a extra wise use of East Med pure fuel sources can be to take advantage of them regionally in assist of the area’s post-pandemic financial restoration and to hasten the shift to wash vitality.

But as we enter 2022 questions stay. Will one other coronavirus variant result in extra lockdowns? Will the EU ETS costs exceed €100/tonne? Are we going to see escalation of the Russia-NATO confrontation? Will a warmer summer season result in much more excessive climatic occasions? Will one other oil disaster trigger costs to exceed $100/barrel? Is Europe going to descend into political turmoil? The final two European Council summits have proven a divided Europe on many key points, together with vitality and local weather. Such occasions may have a knock-on impact on the East Med area. But it isn’t all doom and gloom. There is hope that issues will go proper in 2022 and international – and East Med – financial restoration will proceed.

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