Europe Is Still Waiting for Cheap Energy — Why It May Never Return as We Knew It

Prices can fall, renewables are expanding and futures markets often point to further easing. But Europe’s energy system has structurally changed: LNG instead of Russian pipeline gas, massive investment in grids and storage, higher security costs and a permanent geopolitical risk premium. The real question is no longer when gas prices will fall again — but whether Europe can ever return to the low-cost energy model of the previous era.

There is one assumption that keeps returning to Europe’s energy debate: after every crisis, prices will eventually fall and the system will return more or less to where it started.

Oil rises, but eventually it will come back down.

Natural gas surges, but markets will rebalance.

Renewables expand, therefore electricity should gradually become cheaper.

The problem is that Europe in 2026 no longer has the energy system Europe had in 2019.

The European Commission itself describes the shift from Russian pipeline gas toward much greater reliance on the global LNG market as a structural change. Between 2021 and 2025, LNG’s share of EU gas imports increased from 20% to 45%, while Russia’s share fell from 45% to 12%.

Europe became less dependent on a single supplier.

But it simultaneously became more exposed to global LNG prices, Asian demand, shipping routes and geopolitical chokepoints.

And that changes the entire equation.

The Great Illusion: “The Futures Curve Is Falling, So Energy Will Get Cheaper”

The Modern Diplomacy analysis highlights one particularly important issue: the interpretation of backwardation.

When today’s spot price is higher than prices for future delivery, it is tempting to read the curve as a prediction that “the market says prices are going down.”

That is not quite what it means.

A futures curve reflects current market pricing and expectations for future delivery. It is not a guarantee of where the spot market will actually trade six months, one year or two years from now.

This distinction matters enormously in energy.

Markets can price known information with extraordinary speed.

What they cannot perfectly price today is tomorrow’s war, pipeline attack, shipping disruption, sanctions regime or government decision.

The European Commission provided an almost laboratory-like example this year. In an adverse scenario in its 2026 economic outlook, a prolonged Middle East and Hormuz disruption could push European gas prices toward €80/MWh by late 2026. Even under its baseline assumptions, energy prices remained elevated compared with levels before the latest conflict.

The problem is not that markets are “wrong.”

It is that geopolitical events that have not happened yet cannot be fully incorporated into today’s curve.

From Russian Pipeline Gas to Global LNG

The biggest transformation has occurred in natural gas.

Russia’s invasion of Ukraine and the subsequent collapse in Russian pipeline flows forced Europe to reconstruct its energy map at extraordinary speed.

The IEA has estimated that Europe had to manage a roughly 160 bcm gas gap in 2022 when the decline in Russian flows and other factors are considered. European LNG imports increased by about 64 bcm in a single year.

The adjustment worked.

The lights stayed on.

Storage facilities were filled.

New floating terminals and LNG infrastructure were deployed.

Interconnections improved.

But Europe moved from a system in which a large share of its gas arrived through long-established pipelines toward one increasingly exposed to competition with Asia for globally traded LNG cargoes.

By 2025, the EU had become the world’s largest LNG importer, accounting for around 24% of global LNG imports.

That provides diversification.

It also imports global volatility.

Hormuz Exposed Europe’s New Vulnerability

This is where energy and geopolitics collide.

The Commission notes that TTF gas prices are now much more sensitive to global LNG conditions, including Asian demand, available supply and shipping constraints.

The crisis surrounding the Strait of Hormuz made that exposure particularly visible.

Europe does not need to buy most of its LNG directly from the Gulf to suffer the consequences of a Gulf disruption.

If Asian buyers suddenly compete more aggressively for alternative cargoes, the global LNG price rises.

Europe then has to compete for the same molecules.

That is a fundamentally different risk profile from the old pipeline model.

European Commission President Ursula von der Leyen put the industrial consequence starkly in her September State of the Union address:

“Europe cannot remain an industrial powerhouse if our energy prices are structurally too high.”

She directly connected the Hormuz shock with Europe’s continued dependence on imported fossil fuels.

Renewables Can Cut Generation Costs — But They Do Not Eliminate System Costs

Here, an important distinction is necessary.

More renewable electricity can and frequently does push wholesale power prices lower during periods of strong wind and solar generation.

ACER reports that renewables now account for roughly half of EU electricity generation.

But more wind and solar also require more of something else:

grids, interconnectors, storage, flexibility, balancing services and backup capacity.

ACER estimates that investment in Europe’s electricity networks could reach as much as €2.6 trillion by 2050.

That leads to one of the most important distinctions in the entire European energy debate:

cheaper production of one megawatt-hour does not automatically mean a cheaper final electricity bill.

The consumer does not pay only for generation.

The consumer pays for a functioning system.

The Paradox of Green Europe

This explains one of the most understandable questions consumers ask.

They see solar panels spreading across Europe.

They see more wind turbines.

They hear that the marginal cost of wind and sunshine is extremely low.

So why is electricity still expensive?

Because electricity must also be available at 8 p.m. on a cold evening when solar output has disappeared and wind generation is weak.

The system must be capable of balancing supply and demand every second.

That requires flexibility, storage, interconnections and, for now, conventional generation capable of responding when renewable production falls.

ACER has found that daily wholesale electricity price swings are now around five times larger than in 2020. Solar generation can push daytime prices sharply lower while the evening peak can produce an entirely different price environment.

That is not evidence that renewables have failed.

It is evidence that transforming an entire electricity system has costs beyond the generating asset itself.

The New Cost That Does Not Appear in the Barrel: Security

There is another bill Europe did not have to consider so intensely during the post-Cold War period.

Security.

After Ukraine, the Red Sea and Hormuz, Europe is no longer paying only for gas molecules and electrons.

It is paying for diversification, LNG infrastructure, strategic reserves, stronger networks, interconnectors, cyber defence, critical-infrastructure protection, flexibility and backup capacity.

This is the transition from efficiency to resilience.

The old model asked:

What is the cheapest way to operate the system when everything works normally?

The new model increasingly asks:

How much must we pay so that the system continues working when something goes wrong?

Those are not the same question.

And resilience is rarely free.

“Energy Anelasticity”: Every Crisis Leaves Something Behind

This is where the Modern Diplomacy concept of energy anelasticity becomes particularly useful.

In physical terms, an anelastic system does not immediately and perfectly return to its previous state after pressure is removed.

Applied to energy, the idea is straightforward:

the crisis ends, but the system does not return to exactly where it was before.

Ukraine changed Europe’s gas suppliers.

The Red Sea changed assessments of maritime risk.

Hormuz changed the risk attached to global LNG.

Renewables are changing electricity networks.

Energy-security requirements are changing investment decisions.

Every shock leaves a residue.

And the next crisis begins from a different baseline.

Europe Still Pays More Than Its Competitors

This may be the most dangerous part of the equation for Europe’s economy.

Wholesale gas and electricity prices have fallen dramatically from the extraordinary levels reached during the 2022 crisis.

But Europe has not simply returned to the old world.

The European Commission says retail prices remain above pre-2021 levels for households and businesses, while industrial gas and electricity prices are still around two to four times those of some of the EU’s major trading competitors.

ACER likewise finds that European gas and electricity prices remain structurally higher than those in the United States.

That is not only a household affordability problem.

It is an industrial-policy problem.

Chemicals, metals, fertilisers, glass, cement and other energy-intensive industries must compete internationally against producers beginning with a lower energy-cost base.

Europe therefore faces a much harder challenge than simply lowering next winter’s electricity bill.

It must decarbonise without deindustrialising.

The Biggest Mistake Would Be to Promise That Everything Will Become Cheap Again

There is an important counterargument.

Europe today is considerably better prepared than it was in 2022.

It has more diverse suppliers.

More LNG capacity.

Lower gas demand.

More renewables.

Better interconnections.

And greater awareness of energy security.

In early September, the European Commission said there was no immediate threat to EU gas security of supply for the coming winter despite continuing geopolitical instability.

So the conclusion is not that energy prices can only rise.

They can fall substantially.

Oil can fall.

Gas can fall.

Wholesale electricity can fall.

The more important question is:

when commodity prices fall, how much of the cost created by the new energy system remains?

Europe May Need to Change the Promise

For three decades, the dominant energy proposition could roughly be expressed as:

more competition + more technology = cheaper energy.

The emerging system is more complicated:

renewables + grids + storage + LNG + interconnections + flexibility + reserves + security.

That system can be cleaner.

It can be more diversified.

It can make Europe less dependent on a single external supplier.

It can also become more resilient to shocks.

But none of those advantages automatically guarantees a return to the low-cost energy environment that shaped European industrial assumptions after the Cold War.

And that may be the real meaning of energy anelasticity:

after every shock, commodity prices can fall again — but the energy system left behind is different, carries new costs and places a much higher value on security.

Europe’s challenge, therefore, is no longer simply to secure more energy.

It is to solve a much harder equation:

how to deliver affordable, clean and secure energy at the same time — without sacrificing the industrial competitiveness on which Europe’s economic power depends.

Source: pagenews.gr