Europe’s gas crisis relies on cold, high prices attracting supply

FRANKFURT, Germany — Europe’s natural gas crisis continues. Reserves are low. The prices are high. Utility customers are affected by higher bills. The main Russian supplier Gazprom no longer sells gas as before.

All of this begs the question: how exactly will Europe, which imports most of its energy, get through the winter without a gas disaster, especially if the season turns out to be colder or longer than usual? ?

Here’s how the European Union, home to 447 million people, will try to deal with the crisis:

THE PROBLEM IS LOW STORAGE: Utilities turn to gas stored in underground caverns to meet sudden additional demand for gas for heating or electricity. But Europe started 2020 with gas storage just 56% full, down from 73% a year earlier. The reasons vary: the cold weather last winter, the lack of Russian deliveries on the spot market and the strong demand in Asia for liquid natural gas transported by ship. The European Gas Pipeline Operators Association says the cold weather would mean 5-10% more gas would have to be imported than the maximum volumes seen in recent years to avoid the risk of cuts.

AS A RESULT, GAS PRICES HAVE RISE UP: the benchmark price in Europe is around 80 euros per megawatt-hour, more than four times its level of 19 euros at the start of 2021 and up to 4 euros in 2020. Prices have come down. nearly nine times their level at the start of last year. This price shock ripples through utility bills, alarming consumers and politicians.

EUROPE COUNTS ON HIGH PRICES ATTRACTING MORE SUPPLY: Rystad Energy analysts used ship tracking data last month to watch 11 tankers bringing liquid natural gas, or LNG, to Asia turn around at the middle of the ocean to take advantage of a lucrative sales market in Europe. With prices so high, traders were tempted to divert shipments to Europe even if they had to offer 100% of the price in compensation, analysts at data firm Energy Intelligence said.

“I wouldn’t say LNG is 100% sufficient, but it will play a very important role” in Europe’s energy solution, said Xi Nan, head of liquid natural gas markets at Rystad. But she added a caveat: “Depending on how much Europe is willing to pay.

RUSSIA DIDN’T SEND AS MUCH GAS: State-owned Gazprom sold less gas in the short term through its pipelines through Poland and Ukraine and didn’t fill its European storage as much as it did does normally, even if it seems to fulfill its mission. long-term contracts. Analysts believe Russia could underline its desire for Europe to approve the Nord Stream 2 gas pipeline to Germany that bypasses Poland and Ukraine. There are also heightened tensions with Europe over Russian troop deployments near the Ukrainian border.

LETTING STORAGE DROP TOO LOW CAN BE A PROBLEM: As storage caverns become depleted in late winter, the pressure drops and the gas comes out more slowly. This means reserves might not drop to zero, but might supply gas too slowly to meet a sudden surge in demand.

SHORT TERM: European governments are offering cash grants to consumers to cushion the blow. Sweden became the latest on Wednesday by announcing 6 billion crowns ($661 million) to help households hardest hit by rising electricity prices.

LONGER TERM: The solution is to invest more in renewable energy such as wind and solar. Still, officials admit that gas will play a role for years during this transition.

POLITICAL UNREST IN KAZAKHSTAN DOESN’T HELP: The resource-rich Central Asian country supplies the EU with oil – but not gas – and the flow of oil has not been affected by violent protests that have started against fuel prices, but quickly spread, reflecting wider dissatisfaction with Kazakhstan’s authoritarian government.

EUROPE REMEMBERS WHAT A BAD WINTER CAN MEAN: A cold spell at the end of winter in 2018 sent energy prices soaring. Britain has warned that some industrial uses of natural gas-fired electricity could be cut short. We haven’t come to that, but nobody wants to see this scenario. Nor a repeat of the January 2009 disruption, when a pricing dispute between Gazprom and Ukraine led to a two-week shutdown in southeastern Europe. It cut gas heating to 70,000 apartments in Bosnia and Herzegovina’s capital Sarajevo, forcing people to stay with relatives and emptying stores of radiators.

IF ALL ELSE FAILS: EU law requires countries to help each other in the event of a gas shortage. Governments can declare a gas emergency and shut down industrial customers to spare households, harming the economy but sparing a humanitarian and political catastrophe.

In theory, they can demand cross-border gas supplies from each other. In recent years, Europe has built more reversible pipeline links, but not enough to cover the whole continent, leaving some countries more exposed than others.

Yet the system has never been tested and it is questionable to what extent countries would be willing to share gas in the event of a crisis. The European Commission, the executive arm of the EU, is working to revise the rules to include joint gas purchases, but on a voluntary basis, said Ruven C. Fleming, energy law blogger and assistant professor. at the University of Groningen in the Netherlands.

The overhaul “is a pretty clear indication that even those who installed the mechanism don’t think it would work very well,” Fleming said.

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