Energy Prices Are Surging 250%, It Could Lead to a Global Collapse

As the world tries to return to the post-pandemic "normal", more problems surface. A cocktail of pretty potent things have sent gas prices soaring in Europe, CNBC reported, that could dramatically shake up the energy market in the U.K. and its now estranged business partner, the European Union. 

According to a recent report, natural gas prices in Europe have been on the rise since the beginning of this year and have now soared 250 percent over the last year alone. The rise has been rather steep since August, seeing a 70 percent uptick in a considerably short period of time. While the increased price has not yet affected consumers, the gas and electricity suppliers are already hit, CNBC says. 

Protecting the consumers are tariff caps in the U.K. that are revised from time to time in line with the global prices. Since suppliers buy their stock months in advance, the immediate tariff revision scheduled in October will not take into account the recent rise. The next tariff cap rise is scheduled for April, BBC reports, so customers are unlikely to be affected this winter, while the U.K. government hopes that the prices will temper down by then. 

However, it is the gas suppliers who will face the pinch in the near term. Adding to their woes is the relatively small gas storage capacities in the UK and how far down on the preferred customer list, the country is for other gas producers such as Qatar, says this The Conversation piece. Industry body OGUK has called for the opening of new fields in the North Sea, something that nations are unwilling to do to meet their self-imposed emission targets. Energy supplies from wind farms have also remained lower than average due to a calm summer of 2021. 

If the situation does not resolve quickly enough, gas suppliers are unlikely to avoid the two-sided squeeze of rising input prices and tariff ceilings. While BBC states that smaller players in the U.K. have already filed for bankruptcy, CNBC contends that this will affect the larger players of the market as well, forcing them to fold. 

Global markets are already spooked by the imminent failure of the Chinese infrastructure company, Evergrande, The Guardian reported. With a debt of US$300 billion distributed across 171 domestic banks and 121 other financial firms, the failure of the company is expected to have a major impact on the Chinese economy as is being touted as China's 'Lehmann Brothers' moment. A failure that did not seem huge but one that slowed down the global economy. 

The increasing gas prices are also dividing the European Union, with Spain imposing immediate caps and some countries expected to follow suit, CNBC reported. Major countries in the bloc favor transition to greener means but the split could also weaken the EU's demand for more stringent measures from other countries to combat climate change.