European Energy Concerns Resurface; EU's Restrictions on Chinese wind industry Face Criticism

The recent escalation of the Israel-Palestine conflict has reignited Europe's energy security concerns. The Financial Times reported on the 22nd of this month that due to fears of potential price spikes resulting from the Middle East conflict and damage to gas pipelines, the European Union (EU) is considering extending the emergency cap on natural gas prices introduced in February this year. Simultaneously, ten countries, including Germany, are urging a stronger focus on renewable energy sources. Amid mounting pressure on the European energy supply, some EU policymakers are facing criticism for what is perceived as a "double-lose strategy," seeking to exclude Chinese new energy companies from the European market.

Increased Risk to European Natural Gas Supply

The ongoing Middle East conflict has driven up electricity and natural gas prices in Europe. According to reports from Austria's energate news network, the latest market data indicates that the November contract price for electricity in the European futures market is 132 euros per megawatt-hour. It is expected to increase by about 12% in the first quarter of the next year, reaching approximately 155 euros per megawatt-hour. Natural gas prices have also surged due to geopolitical tensions in the Middle East.

Europe has become more dependent on liquefied natural gas (LNG) supply, with LNG's share in EU natural gas imports increasing from 19% last year to 39%. The International Energy Agency (IEA) believes that the likelihood of significant fluctuations in European natural gas prices is on the rise. If luck does not favor Europe, a cold winter could exacerbate natural gas price volatility. The IEA predicts that it will only be by 2025 when natural gas production significantly increases that the supply-demand imbalance will ease, presenting a long-term challenge for Europe.

Despite efforts to diversify gas imports, Germany and other EU countries have filled their gas reservoirs, but economic sectors are still feeling the pressure of the energy crisis. Over the past year and a half, natural gas prices have continuously risen, leading to cutbacks in various industries. In response to the potential absence of affordable Russian natural gas in the future, the German chemical company Lanxess Group announced a 7% reduction in its workforce, with nearly half of the cuts occurring in Germany. Similarly, chemical giant BASF has reduced its production in Germany while planning to cut around 2,600 jobs.

Europe's hopes partly rest on Qatar. The long-term natural gas supply contract between Qatar and the Netherlands is expected to ensure an annual supply of approximately 3.5 million tons of liquefied natural gas for the next 27 years. Qatar has also signed similar agreements with major European energy companies, including Shell in the Netherlands and TotalEnergies in France.

However, the Israel-Palestine conflict is already impacting Europe's energy supply. Israel's decision to close the Tamar gas field for security reasons has led to a 20% decrease in gas exports to Egypt, affecting North African gas exports to Europe. Europe had plans to import approximately 7.5 million tons of liquefied natural gas from Egypt this year, equivalent to 80% of its production.

There are rumors of potential disruptions to Germany's natural gas agreement with Qatar due to Qatar's alignment with Palestine in the current conflict. The energy partnership between the two countries was expected to provide Germany with 2 million tons of liquefied natural gas annually from 2026 to 2041.

Chinese Firms Align with Europe's New Energy Demand

Against this backdrop, experts like Dick Haierberg, a Munich-based energy policy specialist in Germany, suggest that the Israel-Palestine conflict has not only heightened Europe's concerns about a new energy crisis but has also solidified its commitment to advancing its new energy strategy. Under this pressure, the EU aims to provide more support to the wind and solar energy sectors. According to a draft of the forthcoming "European Wind Energy Action Plan," European wind energy companies will receive backing from the European Investment Bank and faster approval processes.

In this context, Chinese wind power companies, known for their cost-effectiveness and rapidly advancing technology, are seen as having an ideal opportunity to enter the European market. Some Chinese companies are reportedly offering prices that are 25-30% lower than the European average, a condition that European firms cannot match.

Restrictions on Chinese Firms: A 'Double-Loss Strategy'

Despite the strong competitiveness of Chinese new energy companies in the European market, the EU has harbored reservations. Thierry Breton, the EU's Internal Market Commissioner, has threatened to investigate China's wind power sector, potentially leading to punitive tariffs on Chinese companies.

Similar concerns exist in the solar energy industry. This month, Reuters reported that Brussels and European governments are contemplating taking "more stringent action" against imported solar products from China to reduce dependence on products necessary for China's green transition.

Haierberg believes that within European business and academic circles, more people are opposing unilateral restrictions on Chinese companies, as they have firsthand experience. Previously, European restrictions on Chinese solar products led to a decrease in European solar installations between 2013 and 2018 and did not rescue the European solar industry.

Haierberg emphasizes that the EU aims to reduce greenhouse gas emissions by 55% by 2030 and achieve net-zero emissions by 2050. Investigating Chinese companies in the wind, electric vehicle, and solar energy sectors and imposing punitive tariffs could, on the one hand, lead to retaliation from China, resulting in damage to European businesses. On the other hand, it could hinder the progress of the EU's green industry. Instead, he advocates that China and the EU should seize the significant opportunities for cooperation in new energy and decarbonization, rather than encountering obstacles from trade protectionism.

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