Markets Are Good but They Can’t Solve the Energy Crisis
In a post earlier this week, I said that Europe’s energy crisis isn’t over – contrary to what some other commentators have argued recently. Here I thought I’d go into slightly more detail as to why I don’t buy their arguments.
The optimists’ basic contention is that markets will solve the problem. When gas becomes scarce, this sends a ‘price signal’ to the market, prompting people to change their behaviour. Consumers use less, and substitute into alternatives like diesel, which reduces demand. Meanwhile, producers bring online new sources like LNG, which enhances supply.
As the Telegraph writes:
Putin failed to appreciate the power of free markets. Understandably for someone who spent his early career as a KGB operative … he didn’t understand that, for all their faults, free markets have two core strengths. They are adaptable and innovative.”
And according to the Financial Times:
No one should feel delighted they are paying more for energy this winter, but the price signal has done its job. It has forced Europe to adapt. Advanced capitalist economies are remarkably successful in this regard.
The problem here is that the numbers don’t add up. Yes, consumers have reduced their consumption, and producers have replaced pipeline gas with LNG. But even after these ‘adaptations’, prices are six times higher than normal.
Markets for some products – soft drinks, say – are highly efficient. When a Pepsi factory gets shut down, it’s not long before lorries full of Coke arrive to replace the lost inventory. And it all happens so quickly you barely notice any change in the sticker price.
The market for gas doesn’t work like this. You can’t just build a new pipeline overnight. (It took four years to build Nord Stream 2.) And LNG is more expensive, so even if we could replace Russian pipeline gas overnight – which we can’t – we’d still be paying a lot more for energy.
Europe’s problems are illustrated by a recent survey of German manufacturers, the results of which are shown below:
About 20% of manufacturers said they needed to reduce or halt production over the past six months. Yet more than 50% said they will need to do so over the next six months. There are only so many ways you can adapt to high gas prices before cutting output becomes unavoidable.
The analyst Javier Blas says it’s “likely” Europe will go back to buying Russian gas. “If it’s going to keep its chemical, food and heavy industries competitive,” he notes, “it will need some cheap gas. And there isn’t cheaper gas for Europe than Russia’s.”
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The markets might stand a chance were they not hampered by government imposed sanctions and people blowing up pipelines, and of course dogmatic pursuit of “net zero”.
“free markets have two core strengths. They are adaptable and innovative.”
Yep, they were but three words as to why this is now bollocks: Environmental & Social Governance (ESG).
Mark Carney and his robber baron mates’ favourite acronym.
“Environmental & Social Governance (ESG).”
Exactly.
Too many people fail to understand that the WEF and associated ‘robber barons’ CGAF about Western economies other than they must be eviscerated in order to allow for the fulfillment of the “Build Back Better” propoganda.
The populations of Western economies are being deliberately driven to poverty with the intention that in order to survive people will turn to government for help. In return for a modicum of shelter, food and heating people will accept any impositions – social credit scoring, digital currency, lockdown towns and cities, carbon passports, the whole Orwellian kit and caboodle.
The pathway of the ‘robber barons’ is wholesale destruction across our economies and institutions.
We must no longer try to understand the world as we did three years ago. Anything put out by the captured institutions and WEF puppets will have evil at its heart. To think otherwise is utterly naiive.
Not sure that providing the lower income groups basic foods, warmth and shelter will be key to the fulfilment and compliance of the Build Back Better agenda.
Isn’t it the servility of the middle to higher income ‘go along to get along’ professional and managerial groups who already meekly accept, comply and promote the diktats and culture of ESG that will be essential for the fulfilment of Build Back Better?
The EU Referendum demonstrated that it was the latter group as a whole that went along and promoted project fear’ rather than the former.
“It has forced Europe to adapt.” Utter nonsense, just as was the BS about making everybody hide under the bed so that the lurgy wouldn’t get it, just as was the BS that the corona vaxx was safe and effective, even as people keep getting the lurgy again and again, even after 15 booster shots and even as vaxxed people keep ending up in hospital and dying from corona and vaxx-related injuries and deaths mount. This is the same script – establish the desired narrative, repeat it again and again and again, call “dissenters” flat earthers and knuckledraggers, keep repeating how 99% (not 97 or 98% – no, a very tidy 99% – with 1% dissenting, as no one would believe 100% were in agreement) until just about everyone believes the big lie. Forced to adapt – well, it is rather difficult to switch on a light or heat a room if you’ve been switched off at the mains because you can’t pay the – intentionally – extortionate bills. Just like people will supposedly be desperate to consume delectable bugs – if you can’t even afford a loaf of bread because the food supply is being decimated – well, yes… Read more »
I believe we have both said the same thing in slightly different ways.
Does that mean we both have great minds 😉
I would not wish to appear so conceited that I reach such a conclusion but under the circumstances – Yes.
Of course, it is also frequently pointed out that “Fools seldom differ.”
But in this case it is clear that you both are spot on, but beset with battalions of venal, virtue signalling, weapons grade, fools.
Of course
What’s wrong with saying “crap”?🤷♀️
😀 😀
Markets work fine Noah. They are a reactive system.
Just because they don’t produce a desired reaction, doesn’t mean they don’t work.
The high price of gas isn’t a failure of the market, it is the reaction to the brutal actions of governments, restricting gas supplies.
If high gas prices lead to the destruction of industry, don’t blame the market, blame the governments that are responsible for the supply shortage.
The story of the HSBC stopping funding to oil and gas field extraction on GBN is worth a look: https://www.youtube.com/watch?v=Ye07OcA8XF8 from 22:51 on. Are other banks going down the same route? In the interview, the point was made that the Bank may be wary of the attitude of it’s shareholders to the concept of “Net Zero”, and that they don’t want the Bank to invest in such facilities, like fuel extraction.
I agree with others that markets work fine within the constraints to which they are subject. Historically governments restricted their market interventions to ‘tinkering around the edges’, but now markets are being taken over wholesale by centralised state planned mechanisms. Look at the UK electricity ‘market’ if you want an example. We must also remember that the Ukraine war, while not helping matters at all, was predated by supply shortages due to lack of investment in and permissions for fossil fuel extraction. This is the real long term problem, and is caused by the net zero movement. This movement is central to the sustainable development agenda of the WEF. The WEF itself is closely linked with and aligned to UN Agenda 2030. If you read past the comfortable, fluffy words, you will see that Agenda 2030 wants the (developed) world to divest itself of everything that contributed to its growth and prosperity, and move away from democratically accountable systems to a totalitarian one which only has accountability to the sustainable development ideology. Yet our government, along with most others, signed up to this agenda without apparently realising what they were doing, let alone consulting the electors about it. I fear… Read more »
Excellent post, sadly, mostly correct.
There are more of us than them and awful lot of us may be getting to the point where we have nothing left to lose. Isn’t that when people are at their most dangerous to the establishment. Very unBritish of course but so is the authoritarianism we are facing which is gaining momentum by the day.
On the contrary to what the press alleges, Putin appears to have understood perfectly well that to sanction Russian would harm the West. It sure looks like he was right.
‘The optimists’ basic contention is that markets will solve the problem.’ But the market aren’t FREE! Daily Telegraph. If they were FREE we wouldn’t have the problem in the first place. And no reducing demand and adapting doesn’t mean they’ve done their job, markets function to supply not force adaptation that’s what Fascism does, they’ve only done half their job – misnamed FT. Free market mechanism is the supply/demand curve where price is used to balance the two. Two elements working together. Demand increases, price goes up. 1) This signals consumers to consume less to save money, and 2) signals suppliers to supply more to make money. Supply then catches up with demand, and that is continuous process. But that can only work if suppliers are FREE to supply more to meet demand. Prohibitions on exploiting fossil fuels – Idiot Biden’s activities in the USA, banning of fracking in Europe, taxation and regulation to hamper suppliers, closing coal and nuclear plants, and the latest crazies sanctions on Russia and price caps – all mean suppliers cannot respond to increased demand. So what we are left with is increased prices to reduce demand and then inevitably rationing. This isn’t market failure,… Read more »
As both the FT and Telegraph are totally captured, and following the NATO agenda what else would they say?…
Europe absolutely failed to appreciate what their idiotic sanctions would do to their own countries’s economies…..Putin didn’t ‘fail to appreciate’ bugger all……he has gas and oil which he would sell…it’s Europe who refuse to buy, not the other way around.
How do people who have gas central heating alter their behaviour, other than using a bit less….? They can’t suddenly change to another form of heating overnight…neither can schools, hospitals or industry…
Of course things are going to get worse…how can renewables like wind and solar take the place of fossil fuel in the next year or so?
Germany’s second biggest steel manufacturer ArcelorMittel is closing blast furnaces in Germany and Spain…due to high energy costs..this type of thing is being repeated all over Europe…
it’s a bit like repeating ‘safe and effective’ while keeping your fingers crossed hoping it’s true…when it isn’t..and all the wishes and hyperbole won’t make it so.
The economic collapse of Europe is pretty much guaranteed if sanctions continue…
Government have interfered in the energy market to such an extent that it is NOT really a market anymore. Their pretend to save the planet mandates and regulations that pick winners and losers in the marketplace of energy, mean that we are forced pay for unaffordable energy for political purposes, rather than affordable energy that markets would choose. ————-No one would buy potatoes at 3 quid a bag if they could buy them for 50p a bag. But when it comes to energy we are all forced to pay for expensive wind and sun, or biodiesel or heat pumps, or hydrogen etc etc instead of coal or gas. The absurd drive to NET ZERO will cost an estimated one and half trillion all paid for by ——————————YOU. But will it save the planet? Nope, it won’t because the UK is less than 1% of the emissions that are alleged to be destroying the planet. So in effect we in the UK are going to pay for a whole load of s..t we don’t really need at astronomical cost and misery with no noticeable effect at all on climate. ———-Enjoy your gas central heating now because the best heating system you… Read more »
Absolutely..100%……
We know..they know we know…we know that they know we know, and still we are subject to the craziness…It will come to a head…it has to…..
We don’t have a free market in energy. We have a market which has been rigged by the Eco Nutters in the UN / WEF / EU / British Establishment.
A vital need of Homo Sapiens living outside the Tropics is readily available (i.e. relatively cheap) energy because without it during the winter we die. Thus energy is as essential as food and water. Those implementing a Net Zero policy are guilty of betrayal of society and the country so should be seen as traitors.
There is no shortage of traitors in the UK. Bloody country is overrun with the Next Tuesdays.
Well I never, LNG is more expensive. So that is why our government in its wisdom has banned using our own fracked gas and prefers to import LNG from the States. You know it makes sense.
The issue for us is returning to our own natural resources. We have everything we need in abundance on and around our island. A few years ago we had energy security and independence. That has been destroyed by our Government in the pursuit of net zero. They have done this deliberately.
They are therefore corrupt and must be removed asap. Net zero is a scam.
We had so much cheap reliable energy recently that we were able to export it to Europe. Now we are on our knees begging for power.
Let’s start at the beginning.
All this stupidity is based upon one idiotic premise; Carbon is bad.
No it’s not.