European gas problems haven’t started yet
2022.12.19 10:15
European gas problems haven’t started yet
Budrigannews.com – Europe will have a much harder time rebuilding its gas reserves next year than it did this winter. As a result, energy costs are likely to remain high and governments may be forced to take painful rationing measures that they have so far avoided.
Previously dominant, Russia’s gas supplies have significantly decreased since the end of August, making it much more difficult to replenish storage when levels are depleted by the beginning of next year.
Governments weakened by months of high energy costs that have driven inflation to multi-decade highs will also find it harder to bear the cost of buying gas on the open market rather than through contracts negotiated at favorable prices.
In an effort to ensure sufficient winter supplies, the European Union successfully filled reserves to a peak of 96% in November.
Countries also managed to limit use during unusually mild weather, but this month’s prolonged cold snap has made people think about how big the job is.
Fatih Birol, the Executive Director of the International Energy Agency (IEA) with headquarters in Paris, stated last week that “many of the circumstances that allowed EU countries to fill their storage sites prior to this winter may well not be repeated in 2023.”
According to the IEA, Europe could run out of nearly 30 billion cubic meters (bcm) this winter, or nearly 7% of what it needs in 2021.
Russia supplied approximately 40% of Europe’s gas before it invaded Ukraine in February, which led to Western sanctions.
The Nord Stream pipeline to Germany was responsible for approximately 65 percent of these deliveries, and the remaining pipelines passed through Ukraine.
The war with Russia does not appear to be coming to an end, so deliveries through Ukraine are still possible, and gas deliveries through Nord Stream have stopped since the end of August.
The link has been damaged as a result of suspected sabotage, and it is not anticipated that it will resume operation anytime soon.
Investigators at Wood Mackenzie estimate up to 25 bcm less Russian gas will arrive at Europe for the 2023 filling season from April to end September when summer temperatures decrease warming interest.
This indicates that the magnitude of the challenge for the subsequent winter will be determined by the levels remaining in storage at the end of this winter.
Energy Perspectives examiner Leon Izbicki anticipates that Europe’s stocks should be around 55 bcm, or simply over half full toward the finish of Spring contrasted and levels around 84% at this point.
By November 1, 2023, these stores must be 90% occupied, according to the European Commission.
Izbicki estimated that it would cost approximately 58 billion euros for Europe to achieve the goal by 2023 on the basis of an average gas price forecast of 95 euros per megawatt hour (MWh), which is comparable to the filling costs that analysts estimated for this year.
Analysts stated that a wide range of measures, including switching fuels, increasing efficiency, and reducing production, have been used to reduce gas consumption, which decreased by approximately a quarter year-over-year in October and November.
Luke Cottell, a senior analyst at Timera Energy, stated, “The focus will continue to be on demand-side reductions next year, with the scale of the challenge dependent in part on where stocks sit coming out of winter.”
Mercedes-Benz, the German automaker, said it could cut gas use by up to 50% this year by using more renewable electricity, and European retailers have turned off advertising screens and dimmed lights.
Industrial sectors forced to reduce output due to unprofitable production due to high gas prices have also contributed significantly, with some companies moving production to regions with cheaper energy.
Energy Aspects’ Izbicki stated, “We still see the reduction in industrial gas demand owing to lower economic activity as mostly reversible in 2023 if prices drop. However, the longer prices remain elevated, the more likely it is that businesses will permanently offshore their gas-intensive production.”
Both the price and the weather play a significant role in determining how much demand can be reduced.
The Federal Network Agency, a German energy regulator, stated earlier this month that Europe’s largest gas consumer had fallen short of its gas saving goals for the first time.
Liquefied natural gas (LNG) is the obvious method for increasing supplies.
LNG regasification terminals, which reheat LNG before pumping it into domestic gas networks, were constructed or expanded in nations like Germany, Poland, and the Netherlands.
According to data compiled by the U.S. Energy Information Administration, Europe and Britain’s LNG import capacity will increase by approximately 25% by the end of 2023 in comparison to levels in 2021.
However, having capacity does not guarantee availability.
This year, Chinese buyers largely avoided the spot LNG market due to low demand and high prices, and some cargoes intended for Asian buyers were diverted to Europe.
Europe would face fierce competition for LNG, which would drive up costs, and that might not happen next year.
Sean Morgan, director at the U.S. banking firm Evercore ISI, stated that “Asia consumption could shift from a tailwind to Europe to a major headwind for European buying.”
Countries such as Germany, which have opposed the plan, assert that Europe’s efforts to impose a price cap on gas within the European Union could make it even harder for the EU to secure cargoes.
This year, the region was able to secure record volumes of LNG imports despite the painfully high prices in Europe.
In August, benchmark gas prices in Europe reached a peak of more than 300 euros per MWh.
The majority of analysts anticipate that prices will remain high in a range of 90-200 euros/MWh in 2023, as opposed to prices below 20 euros/MWh in 2020.
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Henning Gloystein, a director at consultancy Eurasia, stated, “Next year will be a constant headache for prices rather than the pain of the being punched in the face, migraine attack we saw this August.”
