INSEAD: Is Europe Stuck in a Vicious Energy Cycle
The shale gas boom in the United States has made domestic power producers cleaner and turned coal producers into major exporters. A weak Europe, anxious about fracking, is becoming reliant on cheap U.S. coal to fuel its power stations, trapping it in a vicious cycle.
The ongoing European trepidation towards shale gas is putting Europe at an increasing economic disadvantage. The lack of energy competitiveness vis-à-vis the United States has also become the biggest concern of Europe’s industrialists, mentioned Leif Johansson, chairman of AstraZeneca and Ericsson and head of the European Round Table of Industrialists in a recent interview with the FT.
It is well known that the shale gas revolution in the U.S. has led to a massive drop in natural gas prices. From the peak in 2008, gas prices fell by over 70 percent by January 2010 and have roughly remained at that level since. This has led U.S. electricity producers to increasingly use gas-fired power rather than coal-fired power plants to supply electricity, with dramatic effects on the U.S. supply curves of electricity, as the two curves below show. One is from prior to the shale gas revolution (2005); the other from after the massive arrival of shale gas (2012).