A quadrupling of EU energy prices is crippling energy intensive industries, but the EU sees this as a reason to invest in more renewables.

Guest essay by Eric Worrall

European silicon output shrinking, metal smelters closing as electricity prices quadruple, trade body warns

Probably something to tackle before those chip fabs are built, eh?

Agam Shah Sat 22 Jan 2022  // 09:38 UTC 

Soaring electricity prices have derailed manufacturing involving silicon and non-ferrous metals in Europe, politicians were warned this week.

Eurometaux, a European metals association, urged action [PDF] from the EU, fearing the region could experience spikes in electricity prices for the next decade if nothing is done to control the situation.

The power crisis has already curtailed production and shut down facilities in silicon and metals industries across EU nations. “After a quadrupling of electricity prices, over half of the EU’s aluminium and zinc smelters are today operating at reduced capacity or have temporarily closed, together with a significant reduction in silicon output,” Eurometaux said.

Silicon provider Elkem, headquartered in Norway, also noted [PDF] that silicon prices in Europe reached all-time highs in October and November. That was partially driven by market factors including prices of silicon going up in China and a potential power crisis in Brazil, where the company has production facilities.

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Europe’s ambitious chip fabrication plans may not go as planned without some action by the authorities to prevent disruptive electricity price hikes.

“Metals including aluminium, copper, nickel, zinc, and silicon are all significantly more electricity-intensive to produce than other materials and are priced globally as commodities,” Eurometaux added.

The Russian problem

During her address to the World Economic Forum, von der Leyen urged public and private investments in renewable energy: the EU is trying to shift from fossil fuels to cleaner sources.

That said, Europe is in an energy crisis right now for various messy reasons. The bottom line is that it’s running low on natural gas supplies, and prices of gas and electricity in the bloc have soared. Toward the end of last year, Russia’s state-owned Gazprom reduced its natural gas deliveries to Europe, and said this was in line with the long-term contracts it had with buyers in Europe.

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“Fundamentally, today’s gas crisis must serve to accelerate the transition to clean energy,” von der Leyen said.

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Read more: https://www.theregister.com/2022/01/22/eu_silicon_metals/

The EU seems to see the Russian gas supply crisis as evidence of Russia playing geopolitics with their energy supplies, but the truth is the EU are victims of the poor choices of their leaders.

The EU is suffering because they didn’t pre-order enough gas from Russia, they gambled the spot price of gas would fall, and lost badly. Thanks to Russia’s interconnector with China, Europe is effectively in a bidding war with China, and China so far is willing to spend more money.

China also suffered an energy crisis last year, thanks to incompetent green directives from Chinese Premier Xi Jinping, so Russia tripled their electricity supply to China to make up the Chinese shortfall. Chinese demand for energy IMO is the most likely cause of the pressure on EU gas prices. The EU leadership and energy traders clearly did not see this coming.

If the EU had enough domestic gas supplies they could have shrugged off the Russian gas supply crisis, or even participated in profiting from China’s energy crisis, by supplying energy to China through Russian gas pipelines.

But thanks to renewable energy fanatics like Ursula von der Leyen, the EU has turned its back on fracking and developing meaningful domestic energy supplies in favour of fantasy renewable energy schemes.

The USA is helping Europe with record US gas exports to the EU to try to make up the Russian shortfall. But European import prices are still sky high compared to US wholesale gas prices.

Biden quietly reversed his ban on federal fossil fuel extraction leasing last year, in response to spiking US domestic energy prices. US prices appear to have more or less stabilised, though wholesale US gas prices are still significantly higher than last year’s price. The relatively benign US gas price may be precarious. China is substantially ramping up LNG import capacity, which could put more pressure on global supplies.

If President Biden’s hostility to fossil fuel extraction again puts pressure on the domestic supply of US natural gas, US domestic natural gas users could end up in a bidding war with European and Chinese importers, just like Europe is currently in a bidding war with China. The European energy crisis could spread to the USA.

The EU could also have avoided this crisis by being less greedy, and pre-ordering enough gas from Russia at an affordable price to cover their domestic needs when the price was low. Instead they chose to gamble and lost badly, with the quality of life of ordinary European citizens, and the fortunes of energy intensive European industries.

The people of Europe are paying a heavy price for the incompetence of their leaders.