Just How Bad Will the Energy Crisis Be in Europe This Winter?

Tracy Alloway (0:09)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:14)

And I'm Joe Weisenthal.

Tracy Alloway (0:16)

Joe, things look rough in Europe.

Joe Weisenthal (0:19)

Yeah, we've talked about this. We haven't done a Europe-specific episode in a while, but something we've been talking about lately is the macro force's shortage of energy, high inflation, but also sort of mediocre underlying growth.

Tough position right now.

Tracy Alloway (0:36)

Yeah, you know, my mother is actually visiting the States at the moment. She lives in Austria. So I'm getting a firsthand picture of a lot of the stuff that's going on there in terms of attempts to save energy in the middle of a heat wave, I might add.

And she even had to trade in her car for, she says for something more efficient and reasonable in the current climate. So she gave up this very like gas guzzling convertible in order to get some efficient like sedan.

Joe Weisenthal (1:06)

Well, that's the goal, right?

Everything becomes a little bit more efficient, conservation, ease of the pain. Will she come on the podcast?

Tracy Alloway (1:15)

I don't think so.

Okay, but there's a lot going on in Europe with energy at the moment. And it's pretty clear now, we touched on this a little bit earlier in the year, the potential for an energy crisis in Europe. And it now looks like Europe is firmly in one. So for instance, if you look up the benchmark gas futures in Europe, Dutch TTF contracts, I think they're still hovering around like 200 euros, which is pretty close to a record high.

We know that before Russia invaded Ukraine, it was responsible for something like 40% of Europe's energy imports. That has obviously dropped quite a bit as Russia sort of cuts off gas supplies. But the big question is, what can Europe do to offset this? And exactly how bad could things get this winter?

Joe Weisenthal (2:07)

Yes, this is the key question. How bad will there be a big shortage?

In the summer, you can sort of not run, the air conditioning is hard, or maybe a lot of places don't even have air conditioning, et cetera.

Tracy Alloway (2:19)

Open windows is what my mother keeps telling me.

Joe Weisenthal (2:22)

It's worth noting, by the way, that Dutch natural gas futures contract that you quoted is around 200 euros. It was 2019, it was 11 So I just think it's really, you know, for some context, just an absolutely insane jump. And the gas shortage or the gas crisis is part of it, but also a lot of attention paid lately to the state of the French nuclear industry, disrepair, lots of shutdowns, reactors not operating. So there is a confluence of factors really putting the squeeze on Europe right now.

Tracy Alloway (2:54)

Yeah, and again, like it is just crazy to think how far we've come, both in terms of prices, which you pointed out, but just in terms of the actions to try to contain this crisis. Because I remember when Pierre Anderand came on the show in the spring and he was talking about, oh, Europe might have to ration energy. And that seems so extreme at the time. And fast forward a few months and that is exactly what is happening. There's a scramble not only to save energy, but also a scramble to store as much gas as possible. So I am very, very pleased to say that we are going to be speaking with two people on this topic today. We're gonna have a real discussion around the issue, get some varying viewpoints.

We're gonna be speaking with Javier Blas. He is of course a columnist over at Bloomberg Opinion and an expert on all things energy. And we are also going to be speaking with Alex Turnbull, who we've had on the podcast before. He's a fund manager based in Singapore and also a researcher in global energy.

So thank you both for coming on the show.

Javier Blas (3:59)

Thank you for having me.

Alex Turnbull (4:00)

Thank you very much.

Tracy Alloway (4:01)

So Javier, why don't we start with you?

Let's just do the basic question. How bad do you think things are gonna get in Europe this winter?

Javier Blas (4:10)

Well, it's gonna get bad. And allow me to give you a personal example and also show you how bad I am at investments.

I just recently closed the purchase of a house in London, in West London. I resisted for many years. I was very happy with my flat, but I wanted a garden as every middle-class British person likes. And I did that probably at the very peak of the market. So that's how bad I am.