FRANKFURT, Germany – Europe’s natural gas crisis is not easing. The reserves are low. The prices are high. Utility customers are hit by higher bills. The large Russian supplier Gazprom no longer sells gas as it used to.
The question arises: How exactly does Europe, which imports the majority of its energy, get through the winter without a gas catastrophe, especially if the season is colder or longer than usual?
Here’s how the European Union, with a population of 447 million, will try to deal with the crisis:
THE PROBLEM IS LOW STORAGE: Utilities use gas stored in underground caverns to meet a sudden need for additional gas for heating or electricity. But Europe started 2020 with only 56% full gas storage facilities, compared to 73% a year earlier. The reasons are different: the cold last winter, a lack of Russian deliveries on the spot market and robust demand in Asia for liquefied natural gas by ship. The European Association of Pipeline Operators says that in cold weather, 5 to 10% more gas would have to be imported than the maximum levels observed in recent years to avoid the risk of closures.
THEREFORE THE GAS PRICES HAVE BEEN INCREASED: The benchmark price in Europe is around 80 euros per megawatt hour, more than four times the level of 19 euros at the beginning of 2021 and even 4 euros in 2020. Prices have eased up until Nine times the level from the beginning of last year. This price shock is affecting utility bills, alarming consumers and politicians.
EUROPE BECOMES HIGH PRICES THAT DRAW MORE SALES: Analysts at Rystad Energy used ship tracking data last month to observe how 11 tankers bringing liquefied natural gas or LNG to Asia turned around in the middle of the ocean to take advantage of lucrative advantages Distribution in Europe. With prices this high, traders were tempted to reroute loads to Europe even if they had to offer 100% of the price in compensation, analysts at data company Energy Intelligence said.
“I wouldn’t say 100% LNG is enough, but it will play a very important role in Europe’s energy solution,” said Xi Nan, Rystad’s Head of Liquefied Natural Gas Markets. However, she added a caveat: “Depending on how much Europe is willing to pay.”
RUSSIA DIDN’T SEND SO MUCH GAS: The state-run Gazprom sold less short-term gas through its pipelines through Poland and Ukraine and did not fill as much of its European storage facilities as it normally does, despite its long-term contracts. Analysts believe Russia could underscore its desire for Europe to approve the Nord Stream 2 pipeline to Germany, which bypasses Poland and Ukraine. Tensions with Europe because of Russian troop deployments near the Ukrainian border are also increasing.
LEAVING TOO LOW STORAGE MAY BE A PROBLEM: As the storage caverns are exhausted towards the end of winter, the pressure drops and the gas escapes more slowly. That means reserves may not go all the way to zero, but gas may be too slow to deliver to meet a sudden surge in demand.
SHORT TERM: European governments are offering cash subsidies to consumers to help cushion the blow. Sweden announced last Wednesday 6 billion kroner ($ 661 million) to help households hardest hit by higher electricity prices.
Longer term: The solution is to invest more in renewable energies such as wind and solar energy. However, officials acknowledge that gas will play a role for years during this transition.
DO NOT CONTRIBUTE TO POLITICAL UNREST IN KAZAKHSTAN: The resource-rich Central Asian country supplies oil to the EU – but not gas – and the flow of oil has not been hampered by violent protests that started over rising fuel prices but spread quickly, reflecting wider dissatisfaction about the authoritarian government of Kazakhstan.
EUROPE REMEMBS WHAT A BAD WINTER CAN MEAN: A cold snap in late winter in 2018 caused energy prices to skyrocket. The UK warned that some industrial applications of natural gas powered electricity could be shut down. It didn’t come to that, but nobody wants to see this scenario. Also a repetition of the disruption from January 2009, when a price dispute between Gazprom and Ukraine led to a two-week lockdown in Southeastern Europe. In Sarajevo, the capital of Bosnia and Herzegovina, gas heating has been turned off for 70,000 homes, people have been forced to stay with relatives, and supplies of space heaters are being drained.
IF EVERYTHING ELSE IS MISSING: EU legislation requires countries to help each other in the event of a gas shortage. Governments can declare a gas emergency and cordon off industrial customers to save households, harming the economy but preventing a humanitarian and political catastrophe.
Theoretically, they can demand cross-border gas supplies from each other. In recent years Europe has built more reversible pipeline connections, but not enough to cover the entire continent, leaving some countries more exposed than others.
However, the system has never been tested and the question arises of how willing countries would be to share gas in a crisis. The European Commission, the EU’s executive branch, is working on a revision of the rules to include joint gas purchases, but on a voluntary basis, said Ruven C. Fleming, blogger for energy law and assistant professor at the University of Groningen in the Netherlands.
The revision “is a very clear indication that even those who installed the mechanism don’t think it would work very well,” said Fleming.