All of this raises the question: How is Europe, which imports the majority of its energy, going make it through winter without suffering a gas catastrophe, especially if it turns out to be longer or colder than usual?
Here’s how 447 million people in Europe, the European Union, will deal with the crisis.
THE PROBLEM IS LOW STAY LEVELS: Utilities use underground caverns to store gas to meet sudden increases in demand for electricity or heating. Europe began 2021 with 56% of its gas storage full, compared to 73% one year prior. There are many reasons for this: Russia’s lack of deliveries to the spot market last winter, cold weather and strong demand from Asia for liquid natural gases that ships by ship. According to Europe’s Association of Pipeline Operators, cold weather means that we would need to import between 5% and 10% more gas than what has been observed in recent years. This will help to reduce the possibility of shutoffs.
GAS PRICES HAVE RISEN: The benchmark price for gas in Europe is 80 euros per megawatt hour. This is more than four times the level of 19 euro at the beginning of 2021, and 4 euros higher in 2020. Prices have fallen as much as ninefold from their levels at the beginning of last year. This price shock is affecting utility bills, alarming both consumers and politicians.
EUROPE RELYS ON HIGH PRICES TO ATTRACT MORE SUPPLY: Rystad Energy analysts used ship-tracking data to observe 11 LNG tankers carrying liquid natural gas (or LNG) to Asia making U-turns in middle of the ocean to profit from lucrative sales in Europe. Analysts at Energy Intelligence stated that traders were tempted by high prices to divert cargoes to Europe, even if they had only to pay 100% of the price.
“I wouldn’t say that LNG suffices, but it will play a very significant role” in Europe’s energy solution, stated Xi Nan (head of liquid natural gas markets at Rystad). She added that it all depends on the amount Europe is willing and able to pay.
RUSSIA HAS NOT SENT AS MUCH GASS: Russia’s state-owned Gazprom has sent less gas through its pipelines across Ukraine and Poland than it used to. It has also not filled its European storage as often as it does normally, but it seems to be fulfilling its long term contracts. Analysts suspect Russia is trying to convince Europe to approve Nord Stream 2 to Germany, which bypasses Poland or Ukraine. The Russian troop deployments at the Ukraine border has also heightened tensions between Europe and Russia.
A MILDWINTER IS KEY: Although the weather in Europe and Asia so far has been quite mild, more liquid fuel is on its way and high prices have forced many industries to reduce their production. Norway has been supplying Europe with more pipeline gas.
James Huckstepp (manager for Europe, Middle East, and Africa gas analytics at S&P Global Platts) stated that “it means we can get this winter with Russian flow being as low as it is.” “I wouldn’t call crisis solved yet, as there is still the risk of low temperatures and very little storage buffer.”
Huckstepp stated that if there is an unexpected freeze, it could lead to “a more extreme situation, and you could force cutoffs of gasoline — it would begin with the industry but ultimately the consumers are at danger.”
IN THE SHORT TIME: European governments offer cash subsidies to consumers to ease the pain. Sweden announced on Wednesday that it would be offering 6 billion Kronor (661 million) in cash subsidies to households most affected by rising electric prices.
LONGER TERM – The solution is to invest more in renewables like solar and wind. Officials admit that gas will still play an important role in the transition for many years.
POLITICAL UNREST in Kazakhstan isn’t Contributing: Kazakhstan, a resource-rich Central Asian nation supplies oil to the EU. However, it does not produce gas. The oil flow was not affected by violent protests over rising fuel prices. But they quickly spread and reflect wider discontent with Kazakhstan’s authoritarian government.
If ALL ELSE FAILS, EU legislation demands that countries help each other in case of gas shortages. To spare households and hurt the economy, governments can declare a gas crisis and cut off all industrial customers. This will not only save the economy, but also avoid a political and humanitarian disaster.
They can theoretically demand gas supplies cross-border from each other. Europe has been building more reversible pipeline connections in recent years but not enough to cover all continents, leaving some countries more exposed.
The system has not been tested and questions remain about the willingness of countries to share gas in times of crisis. Ruven C. Fleming is an energy blogger and assistant professor at University of Groningen. The European Commission is the executive branch of the EU.
Fleming stated that the revision was “a very clear indication” that not all who installed it thought it would work well.
