Europe gas crisis hinges on cold, high prices luring supply

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Europe’s natural gas crisis is not taking its name

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Frankfurt, Germany – Europe’s natural gas crisis is not taking its name. Reserves are low. Prices are high. Utility customers are getting hit by high bills. Major Russian supplier Gazprom is not selling gas as before.

This all raises the question: Is Europe, which imports most of its energy, going to make it through the winter without a gas disaster, especially if the season is colder or longer than usual?

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Here’s how the EU, home to 447 million people, will try to tackle the crisis:

The problem is low storage levels: Utilities turn to gas stored in underground caverns to handle the sudden excess demand for gas for heating or electricity. But Europe started 2020 with only 56% gas storage, compared to 73% a year ago. The reasons vary: cold weather last winter, lack of Russian deliveries in the spot market, and strong demand for liquefied natural gas in Asia that ships. The Union of Pipeline Operators of Europe says colder weather will mean that 5% to 10% more gas will need to be imported than the maximum volume seen in recent years to avoid the risk of shutoffs.

As a result, gas prices have risen: the benchmark price in Europe is around €80 per MWh, more than four times the level of €19 in early 2021 and as low as €4 in 2020. Prices have come down. Nine times its level at the beginning of last year. This price shock is plaguing utility bills, consumers and politicians.

Europe is relying on higher prices and attracting more supplies: analysts at Rystad Energy used ship-tracking data last month to bring 11 tankers of liquefied natural gas, or LNG, to Asia to take advantage of the lucrative seas Took a U-turn in between. Sales in Europe. Analysts at data firm Energy Intelligence said that with prices so high, traders were tempted to ship goods to Europe, even if they had to offer 100% of the price as compensation.

“I wouldn’t say LNG is 100% enough, but it will play a very important role” in Europe’s energy solutions, said Shi Nan, head of liquefied natural gas markets at Rystad. But he added a caveat: “How much depends on how much Europe is willing to pay.”

Russia hasn’t shipped much gas: state-owned Gazprom has sold less short-lived gas through its pipelines crossing Poland and Ukraine and hasn’t filled its European storage as much as it normally does, though it seems that it is meeting its requirements. long term contracts. Analysts believe that Russia may underline its desire to approve the Nord Stream 2 pipeline to Germany, leaving Poland and Ukraine for Europe. Tensions have also increased with Europe over the deployment of Russian troops near the Ukrainian border.

Allowing storage to be too low can be a problem: as the storage caves are exhausted at the end of winter, the pressure drops and the gas escapes more slowly. This means that reserves cannot drop to zero, but can deliver gas too slowly to meet the sudden surge in demand.

In the short term: European governments are offering cash subsidies to reduce the blow to consumers. Sweden announced 6 billion kronor ($661 million) to help families most affected by high electricity prices.

Long term: The solution is more investment in renewable energy such as wind and solar. Yet officials believe the gas will play a role for years during that transition.

Political unrest in Kazakhstan is not contributing: the resource-rich Central Asian country supplies oil to the European Union – but not gas – and oil flows were not affected by violent protests, which began over a hike in fuel prices, But shows widespread discontent. On the authoritarian government of Kazakhstan.

Europe remembers what a bad winter could mean: a late winter cold snap in 2018 sent energy prices skyrocketing. Britain warned that some industrial uses of natural gas-fired electricity could be shut down. It didn’t come to that point, but nobody wants to see that scenario. Nor a repeat of the disruption from January 2009, when a pricing dispute between Gazprom and Ukraine led to a two-week shutoff in south-eastern Europe. It turned down gas heat in 70,000 apartments in Bosnia-Herzegovina’s capital Sarajevo, forcing people to stay with relatives and empty space heater stores.

If all else fails: EU law requires countries to help each other in case of gas shortages. Governments can declare a gas emergency and lock industrial customers into homes, damaging the economy but avoiding humanitarian and political disaster.

In theory, they could 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.

Yet the system has never been tested, and there are questions about how willing countries would be to share gas in crisis. The European Commission, the executive arm of the European Union, is working on revising the rules to include joint gas purchases, but on a voluntary basis, according to Rouen C. Fleming, energy law blogger and assistant professor at the University of Groningen in the Netherlands.

“The amendment is a fairly clear indication that even those who set up the system don’t think it will work very well,” Fleming said.

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