Europe's Energy Crisis of 2022

How Europe's dependence on Russian gas led to record energy prices after the invasion of Ukraine, and how governments and industries responded.

Before 2022, Russia supplied around 40 percent of the natural gas imported by the European Union. After Russia’s full-scale invasion of Ukraine in February 2022, gas supplies were cut drastically, and Europe faced its worst energy crisis in decades.

Record prices

European natural gas prices rose to many times their normal levels, peaking in August 2022. Because gas power plants often set the price of electricity in European markets, electricity prices soared too. Households faced huge bills, and energy-intensive industries, like chemicals, steel and fertiliser, cut production.

How Europe responded

New suppliers: Europe rapidly increased imports of liquefied natural gas, shipped from the United States, Qatar and elsewhere. Germany, which had no LNG import terminals, built floating terminals within months.
Storage: the EU required gas storage to be filled to high levels before winter.
Demand reduction: EU countries agreed voluntary targets to cut gas use by 15 percent. Industry and households reduced consumption, helped by a mild winter.
Support payments: governments spent hundreds of billions of euros on subsidies and price caps to protect households and businesses.
Renewables: investment in solar and wind accelerated.

Economic effects

The crisis pushed inflation in the euro area above 10 percent, reduced real incomes and slowed growth. Germany’s industrial production suffered especially. But feared shortages and blackouts were largely avoided.

A fertiliser plant shuts down

A European fertiliser factory uses natural gas both as fuel and as an ingredient for making ammonia. When gas prices rose many times over, producing fertiliser in Europe became more expensive than importing it. The plant cut output, and Europe imported more fertiliser from abroad. The crisis showed how dependent some industries are on cheap energy.

Lessons

The crisis highlighted the risks of relying on a single energy supplier, the value of diverse supply and storage, and the security benefits of renewable energy and efficiency.

Thinking the crisis ended quickly with no lasting effects

Gas prices fell from their peak, but remained above pre-crisis levels for years, affecting the competitiveness of Europe's energy-intensive industries. The crisis reshaped energy policy and trade for the long term.

Key takeaways

Russia supplied around 40 percent of EU gas imports before 2022.
Supply cuts sent gas and electricity prices to record highs in 2022.
Europe responded with LNG imports, storage rules, demand cuts, subsidies and renewables.
Inflation rose and industry suffered, but shortages were largely avoided.