The Slovenia Times

Analyst says crisis result of passive energy policy


Bled - Analyst Denis Mancevič feels that while part of the market distortions and extremely high energy prices can be attributed to the events in Ukraine, some of the roots are systemic. The current boiling point comes against the backdrop of a very passive energy policy at the level of the EU and in Slovenia over the past decade, he told the STA.

The former diplomat and expert on the region of the former Soviet Union said on the sidelines of the Bled Strategic Forum that he did not share the optimism of some of speakers at the forum.

"The question of whether we will have uninterrupted gas supply in winter is really a question of how far Russia will go in blackmailing us," he said.

"If the Kremlin decides to go all the way in this war, including with all means involving energy, and cuts off gas supplies, which in my estimation is not at all out of the question, there will be cutbacks in Europe, because there is simply not enough gas to go around."

Noting this could also cause heating problem in Slovenia, where district heating systems in major cities mostly run on natural gas, he stressed that the share of Russian gas in Europe has been so large that it is impossible to replace it completely in one, two or five years.

"To replace 150 billion cubic metres of Russian natural gas completely after being tied to it for decades is impossible in the short term."

Liquefied natural gas terminals in Europe today are mostly full, he noted. "To fully compensate for the shortfall in Russian supplies, we would need to double LNG entry capacity. The system was not designed to operate in such exceptional circumstances and is therefore not up to the task."

"LNG terminals took decades to be set up in Europe, in Slovenia we see them back on the table after ten years of talks. Croatia is saying it can increase capacity on Krk, but we are talking two, three years. Slovenia still needs to increase the capacity of the pipelines," he illustrated, while adding that "one is the entry capacity, the other is the transport and the whole logistics chain".

Reflecting on announcements of market interventions in Brussels, Mancevič said "the interventions will be very harsh, we don't often see such interventions in the market".

He does not expect high utility bills for households this autumn "because, for the time being, these extreme prices are mostly covered by governments, which have set caps".

There will be no shocks for the population, but there will be shocks for the economy, in particular in the segment of the processing industry that has not yet purchased the energy for the last quarter of this year.

Meanwhile, Mancevič said that he had already been warning a year ago, meaning before the war in Ukraine, that Europe was nearing its biggest energy crisis in 50 years.

While part of the crisis can be attributed to what is happening in Ukraine, "there are of course systemic reasons that have been present for the past decade and have now come to a head".

"Over the last five to ten years, on the basis of the green transformation, there has been significantly less investment in what we now call dirty fossil energy, including gas and crude oil. The Covid-19 pandemic has only accelerated this trend of disinvestment."

While economic activity has picked up sharply again now, "supply is not keeping up with demand on the energy markets", he said, also pointing to geopolitical tensions, disrupted logistics chains due to speculation and coal supply issues.

"We are paying the price for an extremely passive energy policy at EU level and in Slovenia particularly for the lack of investment in new production facilities over the last decade," Mancevič asserted, adding that in the short and medium term, the current crisis will unfortunately put the green transition on the back burner.

Major challenges await particularly traditional power traders who cannot resort to own production capacities. In Slovenia, most of the major suppliers fortunately also have vertically established their own production capacity, in particular HSE and the GEN group.

"Thus, given sufficient hydrology and stable nuclear power plant operations, Slovenia is still relatively well equipped to handle these shocks ... However, regulation is needed," Mancevič said, expressing greater concerns for countries like Italy, where import dependency is already high as it is.


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