The 2021–2022 European Natural Gas Disaster: Was Reagan Right and Thatcher Wrong?

Abstract

Europe's energy supply is in crisis this winter. Owing to the evident Russian manipulation of its natural gas exports to the European Union (EU) in advance of its invasion of Ukraine, prices have spiked wildly—24 times the prevailing EU natural gas price in the summer of 2020 and up to 10 times contemporaneous US natural gas prices in early 2022. Because natural gas prices often‐enough drive the EU's electricity market model prices, the resulting electricity prices at the time of writing throughout the EU were three to six times higher than their 2019 level. The result is a disaster for EU energy consumers in 2022. Russia's potential to hold hostage critical winter natural gas supplies to Europe's millions of natural gas consumers was not unforeseen. Lacking the means to protect against such energy hostage‐taking should call the EU's natural gas regulations into question. It is uncertain whether the EU can avoid such situations next winter and beyond without a fundamental political reexamination of how its regulatory methods led to the current crisis.