Can Europe avoid the energy bill apocalypse?
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Good evening from a sweltering London
European governments continue to look for ways to get rid of Russian power before households see huge increases in energy bills in the coming months.
The final push came with the support of German Chancellor Olaf Scholtz for a new gas pipeline linking Spain and Portugal to Central Europe via France. Spain’s Energy and Environment Minister Teresa Ribera said the proposal, supported today by Madrid and Lisbon, could be ready within nine months.
Meanwhile, according to Portuguese Prime Minister António Costa, the port of Sines on his country’s southwest coast could be used as a hub to transport liquefied natural gas to Europe. LNG is becoming increasingly important as Russian gas dwindles, but Europe faces strong competition from Asia to hold supplies for the winter months.
The EU has identified the lack of alternative pipelines as a major obstacle in strengthening the bloc’s energy infrastructure. Berlin is already under severe pressure after Russia cut power through Nord Stream 1, the main link to Europe, which is currently running at just 20 percent capacity. German households are bracing for a hike in heating costs this winter as the deficit pushes prices up and complicates the country’s efforts to fill its gas storage facilities.
A range of government measures are in place across Europe to tackle the rise in energy prices, from price caps to tax cuts, windfalls and subsidies.
The low rainfall also complicates matters. Norway this week said it would curb electricity exports to Europe if water levels for its hydroelectric plants remained low, tarnishing hopes it could come to the aid of its neighbors. And in Germany, the low levels on the Rhine add to business concerns: Inland waterways may only account for about 6 percent of Germany’s transport volumes, but are used to carry 30 percent of coal, crude oil and natural gas.
In the UK, forecasts for household energy bills continue to rise, driving up the cost of living. The latter, from consultancy Auxilione, suggests the average could exceed £5,000 next year, following a surge in wholesale gas prices.
Ministers meet with heads of energy companies to discuss possible solutions, while also drawing up plans to combat the threat of power cuts this winter. On the positive side, a common front against Russia’s energy scarcity has improved strained relations between the UK and the EU.
The IMF last week proposed that European countries pass on higher energy costs to consumers to encourage energy conservation and the transition to greener power, albeit with targeted aid for poorer households disproportionately affected by the increases.
Meanwhile, the International Energy Agency said Western sanctions had only a “limited impact” on Russia’s oil production. While exports to Europe, the US, Japan and Korea have declined, the routing of flows to countries such as India, China and Turkey has limited the country’s losses.
The IEA also raised forecasts for oil demand due to increased use for power generation in Europe and the Middle East as gas becomes too expensive.
Amid the gloom, there are some crumbs of consumer comfort. US gasoline prices have fallen below $4 a gallon for the first time since Russia’s invasion of Ukraine. The trend is also repeated in Europe, our Energy Source newsletter reports: EU drivers pay 9 percent less than in June and British drivers 8 percent.
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Need to know: the economy
New UK GDP figures This morning showed the economy shrank 0.1 percent in the second quarter, after growing 0.7 percent in the first three months of the year, as households cut spending and the number of Covid cases fell and health output tested. The country also reported its worst trade deficit since records began.
Latest for UK and Europe
Drought was formally proclaimed in parts of England as the UK experiences its driest summer in 50 years, with rainfall, river flows, soil moisture, groundwater and reservoir levels all much lower than normal.
Industrial production Eurozone rose for the third straight month, raising hopes that supply chain problems would ease. The 2.4 percent increase in June from the previous year was well above the 0.8 percent economists had forecast.
The German economy, especially the industrial sector, has been hit hard by rising inflation, supply chain problems and faltering global demand. Growth in what has traditionally been Europe’s powerhouse has stalled, with the IMF slashing its 2023 forecasts. In addition, severe drought along the Rhine poses a major threat to business.
Fed official Mary Daly told the FT it was too early to “declare victory” against inflation, despite Wednesday’s encouraging CPI report. It did, however, support the Fed to slow the pace of rate hikes.
ColombiaThe first left-wing government in the modern era targets the rich and the country’s goods exports with sweeping tax reform. The measures are intended to raise another $5.8 billion next year, or 1.7 percent of GDP.
Argentina raised interest rates to 69.5 percent, while inflation rose 7.4 percent in July from the previous month, an annual increase of 71 percent.
Need to know: business
The head of SMICChina’s largest chipmaker said geopolitical tensions sparked panic in an industry already ravaged by high inflation and a gradual decline in demand.
American editor on the west coast Richard Waters says data use is at the forefront of regulators’ antitrust concerns. Lina Khan, chair of the US Federal Trade Commission, has emphasized the need to act more aggressively against vertical integration – deals that combine companies in different parts of a value chain, such as Amazon’s purchase of iRobot.
Pandemic-related migration to Florida has led to Miami becoming the new boom city for corporate lawyers.
Beijing’s zero-covid policy and weak consumer confidence have battered China’s second-hand market Luxury items such as high-end watches and handbags.
A high end industry certainly not on the rocks – unless you like it served that way – is Scotch whiskey. The spirit has proved surprisingly resilient, given the headwinds of Brexit changes in trade rules, supply chain problems and rising inflation. The number of Scottish distilleries is at its highest since World War II.
Steady progress is being made driverless carswrites innovation editor John Thornhill, but the lack of public acceptance and legal certainty could be the industry’s biggest roadblock.
Automakers also face challenges in their pursuit of an electric future. China has monopolized the supply of materials for: electric batteries while the cost of those who remain in the market rises. Chinese company CATL today announced a €7.3 billion battery factory in Hungary, confirming its status as the world’s largest manufacturer of automotive batteries.
North Korea declared a “victory” over Covid-19 just three months after he first admitted an outbreak of the virus, with a total death toll of just 74. Experts are skeptical, given the lack of mass testing, with some suggesting there are perhaps more to do with the desire to revive trade with China.
The Omicron variant continues to wreak havoc in parts of the world. Tibetan towns were locked down after experiencing their first Covid outbreak in two years. Lockdowns have also affected popular Chinese tourist destinations such as Hainan.
However, there was optimism in Hong-Kongwhich this week shortened the hotel’s quarantine for international arrivals to three days.
The EU drug regulator said it would wait for trial data before approving vaccines designed to target the original coronavirus and its Omicron variant. The decision stands in stark contrast to the US, which plans to approve the shots before releasing data on their efficacy.
BioNTech and Pfizer start clinical trials for vaccines targeting the BA.4 and BA.5 variants of Omicron. BioNTech reported lower-than-expected sales and profits in the second quarter after the EU renegotiated its Covid vaccine contract amid a plethora of shots. Pfizer is also testing a vaccine against Lyme disease.
Novavax also pointed to lower demand for jabs as it lowered its revenue forecast for 2022. People in rich countries have become more reluctant to take repeated injections, while vaccine hesitancy is still a factor in poorer countries.
Health authorities are increasingly focusing on the threat of: monkeypox. Vaccines are scarce across Europe and could run out in the UK this month.
Another potential hazard is: polio virusfound in London’s sewers, leading to the introduction of a vaccine booster for children aged one to nine in the city.
Covid cases and vaccinations
Total number of worldwide cases: 581.2mn
Total Doses Administered: 12.4 billion euros
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What good news…
columnist Sarah O’Connor picks a cheering nugget from some new official stats. Compared to pre-pandemic times, Britons spend more time socializing, relaxing and staying fit and less time commuting. It may go on for a long time.
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