Germany’s economic outlook continues to sour, as experts warn a recession is a near certainty for Europe’s largest economy. The chief reason is the chaos that the war in Ukraine has brought upon global energy markets, but the problems run far deeper. Straight Arrow News contributor Peter Zeihan says Germany’s gas woes are a sign of Europe’s growing energy crisis, and could have long-term consequences.
Excerpted from Peter’s Sept. 8 “Zeihan on Geopolitics” newsletter:
I have admittedly been taking a break from presenting an update on Europe’s energy future, and not just to hike into the wilderness. There are certainly a lot of balls up in the air right now, and we’re seeing policy and supply changes from week to week. But while we don’t know yet what–if any–“fixes” are in the future for Germany and its neighbors, we know where the shortfalls are.
But first, the good news: Germany’s energy storage is 70-80% full. Industrial and residential users are looking to see where they can voluntarily cut back usage. Governments are looking to step in and help customers shoulder expected price increases. Good? Sure. Enough? Ehh…Yes, the Europeans are unlikely to see the lights actually go out because of a lack of material. That’s great. They’re going to see it go out because of a price level that no one can afford. Now, the only way you can deal with this is by reducing marginal demand.
You’re talking about everyone needing to cut their energy consumption by about 10 to 30 percent. Right now, the Europeans are a little ahead of the schedule on that, but they haven’t had to shut down anything from an industrial point of view, and that is coming. One of the key things to remember is that Germany is not like the United States. In the United States, we’re relatively agnostic about where we get our energy: Domestic versus foreign, coal versus natural gas versus solar versus wind. And because of that, no marginal supplier in the national market is able to really dictate prices because there’s always a replacement system. Well, the Germans are removing nuclear from the mix and the Russians have removed natural gas from the mix and other countries have coal or nuclear. Germany doesn’t have any of that. So they’re all being supplied by marginal demand…being supplied by marginal suppliers right now.
And if you go into winter when demand skyrockets, because you know, you’re cold in the winter, you know that the prices are going to go through the roof, even if supplies are not in danger. What that means is in Germany, we have a very big problem coming up. Not just because we’re gonna be seeing blackouts or brownouts or high prices; but in order to crush that demand the German government’s going to have a very clear choice to make.
Let their people freeze in the dark or reduce industrial demand.