June 26, 2022

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Index – Abroad – The world’s energy supply system is on the verge of catastrophe

Following Russia’s occupation of Ukraine The world has reached a crossroads. Some business leaders have warned of the acceleration and stagnation of globalization. Academics are concerned about the recurrence of military violence and welcome the resumption of transatlantic relations. Countries are reconsidering every aspect of their foreign policy, including trade, defense spending and military alliances.

These dramatic changes have obscured another shift in the global energy supply system. Over the past two decades, the urgent need to reduce carbon emissions has gradually transformed the global energy supply system.

Europe most vulnerable to Russian (and)

As a result of the Ukraine war, energy security has come to the fore again with climate change. This change in attitude is transforming national energy management, energy trade and the wider global economy.

Countries are giving high priority to domestic energy production and regional cooperation.

The energy crisis triggered by the Russian invasion of Ukraine will become the most serious crisis of the last half century. Many analysts have already compared it to the oil crisis of the 1970s, but there are significant differences. First, the world economy is low on energy. Economic growth is higher than energy consumption, so the world already uses very little energy per unit of GDP.

Moreover, there are more companies distributing oil around the world today than there were in the early 1970s, with only a handful of companies controlling much of the world’s oil trade. As a result, power supply chains are now more durable.

Russia is not only the world’s largest exporter of oil and refined petroleum products, but also Europe’s leading natural gas supplier and is used to supply power to nuclear power plants that export large quantities of coal and low-enriched uranium, not to mention many other raw materials. Because Prices of coal, petrol, oil, natural gas and other raw materials are at an all-time high,

Even before Russian President Vladimir Putin decided to attack Ukraine, the global energy supply system was in danger. Europe and the rest of the world are facing energy production challenges because the electricity they generate comes from uninterrupted sources such as solar and wind. Between 2021 and early 2022, rising natural gas prices pushed some European utilities into bankruptcy and forced governments to intervene in household energy prices.

The turmoil in the liquefied natural gas market led to the search for alternative energy sources in Asia, which would flow more to Europe due to higher prices there. Coal became runner-up in this category, making it an abundant and relatively inexpensive alternative to natural gas. China and other countries have stepped up coal production, somewhat easing pressure on global gas markets amid mounting tensions over global energy shortages.

If coal production in Asia does not increase, Europe will be less able to cope with Russia’s gas losses.

But due to its high reliance on coal, its price has risen to an all-time high, with low-income countries such as India and Pakistan struggling to meet their energy needs amid heat waves and deaths. As the price of natural gas used to make compost rises, so does the price of foodIt has already risen due to the disruption of agricultural exports to Russia and Ukraine.

Prudent government investment

Europe could be hit hard by Russia’s energy exports. To achieve energy security, countries will need multiple energy purchase options, diversified energy supply and adequate reserves during emergencies.

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For all this, government intervention is much needed. Unrestricted market economies often do a good job of giving consumers more access to energy. If one place supply is disrupted due to natural disaster or political instability, unrestricted trade in highly integrated and well-functioning commodities markets will allow consumers to find alternatives and thus avoid shortages.

The current European energy crisis makes it clear that switching to alternative energy sources is only possible for political, economic or diplomatic reasons. The private sector is not encouraged to invest in such infrastructure because the disruptions are unpredictable and the full cost of the resulting collapse will not be borne by the private sector. So governments have to intervene.

Lithuania is a great example

Nearly a decade ago, the country developed the liquefied natural gas (LNG) terminal. The terminal allowed the Baltic state Russia’s dependence on natural gas is decliningAnd it is better to bargain for Cosprom.

However, the commercial operation of the terminal alone will not cover its cost, especially since it is often less efficient.

The terminal is financed only by loan guarantees and other forms of support from the Lithuanian government, in addition to European investment bank loans. The decision to invest in energy security infrastructure pays off today, allowing Lithuania to become the first European country to completely suspend Russian gas imports after Putin’s invasion of Ukraine.

Germany is also looking for liquefied natural gas to reduce its dependence on Russia. Russia has long been a cheap source of natural gas for Germany, which is why Germany has gradually increased the amount of gas it can import from there and by 2021 will have more than half of its gas from Russia.

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Now, Berlin has set aside 3 3 billion to build an LNG terminal to be somewhat independent of Russian gas. Businesses and consumers will have to pay more for energy in the future, but the government has created the infrastructure to implement a very different natural gas supplier base.

These steps by Lithuania and Germany form the latest Commission on the European Commission’s efforts to increase competition in the gas market and to provide direct funding for pipeline development and liquefied natural gas infrastructure. These are investments that do not give much incentive only to private companies. As a result, Europe’s natural gas market is much more flexible today than it was in 2009 when Russia cut off gas supplies.

However, there are other answers to the crisis.

Spain and Portugal have agreed to increase the price of natural gas, which is only a fraction of the market price.

And some Democrat politicians in the US Congress have proposed measures to curb rising prices during national energy emergencies declared by the president.

One of the legacies of war in Ukraine is a new energy supply system that emerged in Europe, but extends to the most remote part of the world economy. This is what the struggle against energy security and global warming must combine.

Governments have a huge responsibility in this situation because without their controlled and increased intervention we would face a deterioration in the world energy security situation and a global climate catastrophe.

(Cover photo: A liquefied natural gas (LNG) terminal in Lithuania on October 27, 2014. Photo: Petra Malukos / AFP)