Choose One: Heat Your Home or Feed Your Family?

and in the years ahead. Fallout from Russia's invasion of Ukraine, along with poor government planning and a lot of other economic pressures, have driven up the price of fuel for homes and businesses. Earlier this year, Europe was looking at shortages and possible power outages. Those are some angry UK citizens protesting soaring fuel costs. In October, the UK and governments across Europe rolled out fuel price supports to try to keep millions of households from falling into what's called

fuel poverty. The good news is the weather has been warmer than expected, and a big influx of natural gas from other places has largely filled Europe's energy reserves and tamp down prizes, at least for now. But a cold snap could change all that, and even if Europe escapes the worst of it this winter, shortages are all but certain in the years ahead. And by the way, this problem it's not going to stop in Europe. The rest of the world, including the US, is looking at rising

energy prices and shortfalls down the road. To sort all this out, my colleague Rachel Morrison joins me from London. She leaves Bloomberg's energy coverage in the UK and across Europe. Rachel, earlier this year, the UK and other governments in Europe we're getting ready for a disaster of a winner. They were struggling to find enough fuel and those fears have come down a bit, but I don't think we can

say they're in the clear just yet. Can you spell out exactly what happened that caused energy prices to spike so much? Well, the UK is very dependent on gas. We get about thirty eight percent of our electricity from gas.

Our homes are heated by gas. So when Russia cut off gas supplies along the nord Stream pipeline recently, that affected the UK market, and even before that, Russia was slowly squeezing supplies to Europe and pushing up prices, and we've had really a phenomenal increase in gas prices, which has a knock on effect to electricity prices. That's affected

the UK in lots of different ways. We've seen the economic impact with rising inflation, and we've seen the industrial impact with industries having to shut and reduce operations because energy bills are just so high. And then also for households, it's really become so expensive that the government has had to come in and help people with bills because it was just getting to the point where they were really worried that this winter people wouldn't be able to pay

their bills, wouldn't be able to heat their homes. Rachel, it seems like a lot of this really started as sort of Domino's tumbling once Russia invaded Ukraine. How much of this is directly related to that, and how much of this is just another symptom of a larger problem that was always going to present itself in one way or another. In many ways, for those of us in the energy industry or observing the crisis started before Russia

invaded Ukraine. We could see that coming out of the Corona virus lockdowns, demand bouncing back quicker than anticipated, and that was causing prices to rise already. And then when the war started and gas became weaponized, and the reality is the only thing that's certain now is a Russia is now engaging in gas as geopolitical weapon, and this is e skeletor so. Russia obviously knows that Europe is

a huge customer for gas. And on one hand, Russia gets a lot of revenue from Europe for for all of its energy products, and that is a big driver of why they wanted to keep you know, some supply coming to Europe. But also, you know, Vladimir Putin knows that it's a huge weak spot for Europe. The G seven leaders agreed to implement a price cap on Russian oil, intriguing time and gas from reversed plans to resume gas flows through the North String pipeline. EU energy ministers are

now preparing for an emergency meeting. He's really used flows of gas as a way to punish Europe for sanctions, and he's said that, and his government has said that, and gas Prom, the Russian energy company, have explained that, and so it's become completely politicized and it's not really so much about gas flows, but it's about squeezing Europe and trying to get something back, you know, some softening of sanctions and some help which Europe has stood fast

and hasn't given into. So there's the short term problem of what's going to happen this winter, but maybe even more difficult is the long term challenge of finding enough new sources of energy so if one of them is cut off for whatever reason, the whole citizen doesn't just come apart. Yes, we are thinking a lot about the kind of long term in the short term and what this war on Ukraine means for energy supplies, and in the short term, you know, the UK is trying to

shore up energy supplies. So one of the things that the government has decided to do is to keep several coal units available this winter, so to make sure that if there isn't enough gas to use for power generation, that we have alternative sources because it might not be that windy, but that really underscores the situation that we're

in that it's any source you can find. That is what all politicians need to make sure that their lights stay on, that the citizens are warm this winter, because that would be a political disaster if you have to explain to people under your watch why those things weren't available to them. And that is the situation that we're in. We don't we can't say for certain that there aren't

going to be black earthes um in certain parts. We know that National Grid are drawing up plan ends for what they will do and how they will handle things if there isn't enough gas, which industries they will cut off, how they'll deal with households. And while those plans have always been there in the background, it's quite frightening to see them being drawn up and with some urgency for this winter, because that's really the situation that we're in.

The UK and France, Germany, Italy other countries have stepped in with fuel price caps and other kinds of support for businesses that are getting crushed by high fuel prices and also for families that are being clavered with high inflation, to try and help them through. It has become very very expensive for households, even with some of the government aid to help, which is essentially a freeze on wholesale prices.

We heard last year, you know, prices were already high and they'll be much worse that food banks and people didn't want to take root vegetables because they took too

long to cook. Because they were thinking about their energy use in so many different ways, from how much water you use to wash the dishes, trying to do that only every three days so you could use less hot water, how often you shower, how long you shower for you know, heating every single room in your house, turning radiators off, things that you know are dangerous for people with health conditions.

The price caps have helped, but even with this help, you've written that charity groups say millions of UK households are still being pushed into fuel party, which I mentioned at the tab of the show. Can you tell us what is fuel party? The definition of fuel poverty is where a household spends ten percent or more of their

total income on energy. So even with the government package, charities still put that figure at six point seven million, and that's up forty nine from a year ago, so we can see that the situation is getting worse for household Our producer Frederica Roman yellow as people in learning how they were feeling about winter coming, and they did not hold back. I'm absolutely disgusted with the way, Uh, the energy bills are about to go up. I am

a pension and my husband is also a pensioner. I'm in a very insecure job which may end, so I'm absolutely terrified. I know I cannot pay five pounds a month. My grandpa he um, he's been watching TV by candle light because he's worried about turning his his lights on.

I am. I am worried, but even primarily to even put the heat on, because I'm like, oh, I don't want to be Charles any builds and even a bit like randomly you can just get like even like, oh, your debt's gonna be doubled or might it's going to be double, and it's like, I think so unstable. Racial course, not everyone is exactly crying over high energy prices. The energy industry is doing pretty well. They're banking big profits.

Is anyone questioning what their responsibility is in all of this? Yes, there's an interesting dynamic. If you sell oil, gas or electricity made from renewable sources or something but the sort of fixed cost, then you are making a lot of money from high prices because you know, particularly for renewable generators, they don't have fuel costs as such, and they're just selling electricity into a high priced market. So that has been a big issue that has seen a lot of criticism.

But this idea is also spilling into Europe. The kind of mismatch of some companies doing really well out of the crisis and returning a lot of cash to shareholders while people can't heat their homes, and the kind of unfairness of that. Conversation with Rachel Morrison continues right after the break with your in the middle of its worst energy crisis in decades, politicians are being forced, as we mentioned, to look at those tonsis the kinds of ideas that

are being floated. They were unthinkable until very recently, but they kind of hark back to the nineties seventies, Rachel. Thanks to generally healthy energy reserves at the moment and mild weather which means people aren't using as much to heat their houses, the worst fears about this winner eased up a bit, but if things get cold or there's

dip in supply, that could change pretty quickly. As we've just heard in those news clubs, governments are getting ready for the worst, and one extreme example you've written about is the UK making plans for organized blackouts, which is essentially energy rationing, is there right, Yes, that is the way that the grids would deal with an energy shortage.

I mean, if we can paint the picture that it's perhaps a cold, dark day in December, there's not very much wind, and there's a lot of demand on the system. Everybody's got their lights on, their heating on, you know, they're coming home and turning the oven on to cook. And at that point a power station trips and that means, you know, it doesn't generate. That's when National Grid, who manages the electricity system, will sort of kick in with

their plan to deal with that. So there are various steps that they take before the need for an organized or a rolling black arts. So first of all, they put a notice out to the market asking for more supply. If that doesn't happen, then they need to take some action to reduce demand, and that can take lots of different forms. They have agreed contracts with come Pannese and with industry which they can trigger to say we need you to do what you said you would do which

has reduced demand, and we pay you for it. And if all of these tools don't work, this sort of final thing that they may have to do, and they have outlined this is take action to cut power to households and this would happen. National Grid outlined in the document that we saw that if there wasn't enough gas for power generation, so it's less likely to be home heating, but it's more likely to be we don't have enough electricity, and a kind of planned blackout would be different regions

being asked to use electricity at a certain time. So you're told which our or you know two hours you will not have electricity for so you can plan for that, you can have candles, you can make sure that you know you're prepared, and then each region takes it in turn to use electricity and then to have no electricity, so that everybody sort of gets just one one period of blackout and that's an organized blackout and that you know, it's quite extreme, but a lot more manageable than the

whole system going down, which is probably quite unlikely because of some of these tools that the grid has to kind of manage things. That's just an a stonishing thing to imagine happening in the UK in it really is, and then you sort of hear some of the tips that companies have for people to use less energy. You know, wear an extra jumper, and you think, is that really going to help in the kind of face of a

rolling blackout. Are the UK and European government's working together to meddle through this crisis or is this a situation where it's every nation for itself. This is one of my favorite topics because I think it could be a massive curveball this winter that while we're all sort of thinking about ourselves, we forget that, particularly on the electricity side, Europe is one big connected grid and that was what we wanted. That was part of the push for the

single energy market in Europe. The idea being with these huge power cables that connect markets. So the UK has a cable to Norway, so the idea is that when it's super windy in the UK, we are sending excess electricity to Norway. They have a lot of hydro which we don't have, and they have very low power prices so they can send us or they're clean hydro power. But what happens when everybody has a crunch and at

that point, you know, it becomes a political decision. What do you do and if one country starts turning its into connectors off, does that mean everybody will and does the whole system kind of come unraveled? And yeah, I'm really interested to see whether that solidarity principle can hold together. You know, earlier in our conversation you had said that the government is anticipating that this energy crisis could wind up pushing through next year and into the following winter.

Do you have any idea to do the governments have any idea about how long we can expect this to last.

We are are hearing that one of the ways that Europe is trying to replace Russian gas is by getting more supplies of l n G that's liquefied natural gas, and we only have a certain number of import terminals, so there are lots of plans to build more of those, but that can't be done overnight, so a lot of those won't come online or become available until six So that is really the point that people think there can be a physical solving of this if everything else stays

the same. If we don't get Russian gas back again along nord stream and this infrastructure isn't available until then, things are going to be tricky for a number of years, and why next winter is already looking so difficult is because this year we filled up our gas storage with Russian gas. We were getting Russian gas and we are

now at good levels of storage. But next year we probably won't have those flows to fill up the storage, so that's going to be more difficult, which is going to put us in a more difficult position ahead of next winter. So it really rolls on and we can already see that sort of being anticipated in prices. Rachel, thanks so much for being here after the break. How governments around the world are bracing for an unforgiving energy future.

Ros Mathison overseas Bloomberg's government coverage around the world, and she joins me now from London, want to ask you, is the energy uncertainty we're seeing in the UK and Europe a sign of things to come for the rest of us? Is it just a matter of time before people all over the world starts seeing similar shortages and price wings. So obviously this is something that is getting most of the focus in Europe and the US, and it seems to be this question, really, will there be

an energy crisis in Europe in winter? Will that spread elsewhere around the world. But it is really a problem that is destined to spread because as countries really try and scramble to secure energy supply, they're going to be trampling over each other to do so. And so you

can see this is a problem. It's going to go everywhere because as more countries reach out to get supply in Europe, they're pushing other countries out of the way, particularly by trying to get supply in places like North Africa. So then you have Asian countries, for example, saying, well, where am i in the pie on this? Where am

I in the line? Um? The thing that worries me is not so much this winter in a way, because you have France and other countries saying that they've got their supply for the winter, their storage tanks are full. It's the next winter that could be the real problem and the one after that, because where are they going to get the energy for that. We can't imagine that pipelines from Russia will be resuming any time in the

foreseeable future. There's limited supply from elsewhere. So we get through this winter, but then where do we go and how far does that spread again? So that's when I think you might see it going far beyond Europe and into places like the US and further appeals. One thing we just heard from Rachel is that countries in Europe share across borders different forms of energy, and if one has more of one kind, they'll share it and it

goes back and forth in that way. But if they become concerned that they won't have enough, there's the risk that one country will turn it off and that will have this domino effect. Are you starting to see any sort of friction in that system, Well, it's early days, but we are seeing some signs of it. And I'm always loath to use the per word protection is M

because it gets applied very quickly two different scenarios. But we have seen protection is M emerged in past history in other sectors and with far less crisis going on around the world to underpin it around you know, food supply and so on, and you see countries start to say we're not going to export our products anymore, We're

going to hold onto them where we are. And what we're going to see on energy, perhaps in that scramble again into next winter to secure supply, is that you may see some jostling that begins, and we've seen little

bits of that already. We saw some of it in North Africa because we saw France and Spain and other countries busily rushing into North Africa to try and get commitments on supply, and some accusations that you know, the Spanish in particular, are being pushed out of the way from existing contracts as a result, and that was sort

of just around the edges. You can imagine that if they really start to worry about how they're going to go next winter, they will start to compete with each other because in the end of the day, each country really will be thinking about its own citizens and its own businesses, right. I mean, we've seen a lot of European countries, especially Germany, to a very dependent on supplies

from Russia, having a very difficult time. In say the United States an ocean away, or in Latin America, the equation is different because they are aren't as dependent on Russian sources of fuel, and yet they don't seem entirely immune from a similar sort of thing happening. Well, that's right.

You can take the UK as an example there, because the UK is actually far less reliant on Russian gas than other parts of Europe, particularly Germany you mentioned is the biggest one of all, but the amount that the UK relies on it is a lot smaller. In the early days of this conflict in Ukraine, in fact, UK was sort of trumpeting that quite loudly. There are alleged

self sufficiency on gas. And yet you look at the UK right now and a lot of concern about poverty for people who can't afford these energy bills into winter. And so even a country like the UK, which is fairly immune from Russian gas, is feeling the effects. And it's obviously much closer to Russia than the US is. But we'd use that as an example to argue that the US probably needs to be paying very close attention

to this because it can sneak up very quickly. And we saw of course President Joe Biden in the US meeting with the Crown Prince of Saudi Arabia to try to get them to keep the flows open, and was not met with great success there. Well, that's right, and we're wondering in the White House how much they might be regretting that trip at this point, given it was

done with such fanfare. He went there specifically to try and get something from the Saudi Crown Prince, and he really had to make a good wile gesture to do so. He went to Saudi Soil, he met him there. That's after years of the Saudi Crown Prince being seen as something of a pariah on the global stage for some of his behaviors at home and in the region, and

to get nothing out of it. Um. So certainly it does raise questions about how much the US can go out there and affect and control supply and through that control prices. Let's turn to Asia for a second. Um, an enormous consumer of energy of all kinds. Um. They have been somewhat isolated from this, and yet like the US,

they can't exactly rest easy. Well, that's right, and you can see how China has been quite willing to keep doing some business with Russia and all of this, certainly on the energy side, because China really needs its economy ticking over, and so does the rest of the world. Actually, given the size of the Chinese economy, they do invested interests in the success of China. But you can see that the president See Jing Ping, really wants to put

his economy in a more stable footing. So he's willing to fire up coal plants whatever it takes to get his economy moving and to sustain it. And so he's quite willing to keep buying energy from Russia. But beyond that, you also see India in all of this. India has been extremely willing to keep doing business with Russia, perhaps even more so than China. And you can see a very kind of I guess pragmatic for one of a better word, stance being taken by the India leadership to

do that. So if I ask you to look into rises magic crystal ball as somebody who thinks about government policy around the world every day, Um, what do you think the answer is? And I suppose it's now a one size of it's all answer. It's a really interesting and difficult question. I guess. I come back to the idea that in the end, governments are beholden to their voters, and that's probably their primary concern is getting frankly reelected.

And many election cycles are particularly short these days, and government's never seemed to stop campaigning, And so does that mean that first and foremost it is that reality of well, we need to stay popular, we need to take care of our people. We need to show them that we're providing for them um and giving them opportunity, economic stability, jobs and so on. So in that case, do you go left and back to dirty energy because you just

need growth and factories working and people in jobs. Possibly in some places, frankly, that could be the imperative. Thanks a million for being here. Always great to talk to you. Thank you, thanks for listening to us here at The Big Take, the daily podcast from Bloomberg and I Heart Radio. For more shows from my Heart Radio, visit the i

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