Taps Coogan – August 25th, 2022

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The following chart, from The Daily Shot, shows that Producer Price Inflation in Germany has reached 31.8% year-over-year, with no signs of slowing down.

The reason behind the surge is of course surging energy and electricity prices.

Natural gas, more so than oil, is behind Europe’s energy woes. European benchmark gas prices are up 6,790% since Spring 2020 and still pushing higher.

Europe’s, and particularly Germany’s, choice to move aggressively towards intermittent renewable power sources without battery backup while decommissioning nuclear has left the continent totally dependent on natural gas for maintaining on-demand electricity. Germany’s stupefying choice to deny permits to several LNG import terminals in prior years in favor of doubling down on Russian supply left Europe further compromised. As a reminder of how realistic the 100% wind and solar scheme is, just the batteries to back up Germany’s wind and solar today will take three times anticipated global grid scale battery production in 2030.

There is no quick solution to this problem, especially considering that global natural gas production is constrained beyond just Europe’s regional problems. The high relative cost of energy in Europe versus elsewhere is going to be a major drag on the continent’s already lagging competitiveness and shrinking workforce for years to come.

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