Prior to the Russian invasion of Ukraine, Russia supplied gas to Europe at 100 per cent capacity, supporting around 40 per cent of the European natural imports. Following the start of the war, Russia reduced its gas supply – via its Nord Stream 1 pipeline – to Europe, accounting for only nine per cent of European natural gas imports. This has resulted in severe gas shortages across Europe, leading to high prices in the region.
With gas and electricity prices hitting all-time highs after Russia’s invasion of Ukraine, governments in Europe are likely to ration energy supplies for this winter and future ones. In fact, earlier this month, Ursula von der Leyen, president of the EU commission, called for cuts to electricity use across the bloc and windfall taxes on energy firms in order to tackle high prices.
What’s more, European governments have already begun to call for an increase in domestic production and decrease in consumption of natural gas. In September 2022, the German government extended the life of two of its remaining nuclear power plants – which were planned to be shut down by the end of 2022 – until April 2023. Elsewhere, the Netherlands has removed production caps from all coal-fired power plants, while in Norway, the government approved plans to increase gas production in six offshore natural gas fields to raise the country’s output.
Himanshu Bajaj, energy procurement specialist at The Smart Cube, comments on how companies can proactively take steps to mitigate soaring energy prices, as well as how they can prevent supply chain disruptions during such macroeconomic events:
“A multipronged strategy to address supply chain disruptions is the need of the hour. Firstly, it is vital for firms to map their suppliers on a tiered basis, so they can get a clear picture of critical raw materials that are at risk. Businesses must also evaluate the health of suppliers, both from a financial and supply stability perspective.
“As well as this, firms should engage in renewable energy agreements. As energy prices continue to rise, these agreements will become more attractive. For example, corporate solar power purchase agreements have already proven effective in providing savings, budget certainty and energy independence.
“Companies must also consider reducing their energy consumption during such periods of time. This can be achieved through locating energy efficiency levers to reduce consumption through LEDs, VFDs, HVAC, or other facility-related upgrades. As a result of this, energy consumption will decrease, reducing overall costs.
“Finally, businesses should also continuously monitor the situation as it develops, keeping across the restrictions being implemented and the impact that Europe’s rationing plans and other geopolitical events are having on supply chains.”
If you would like further insight or commentary from Himanshu, or would like to arrange an interview, please do not hesitate to get in touch.