Europe Needs Luck to Escape the Worst of Gas Crisis

"Europe has just begun drawing on the gas it hurriedly put into storage after clumsy sanctions and audacious criminal attacks cut of Russia’s pipeline flows. To be in as good shape next year, the region can't afford to deplete it too much this winter.

This week, the European Union flipped from making net injections of gas into storage to withdrawals for the first time this season. In 2021 and 2020, the switch happened much earlier, in mid-October and late September respectively, according to Gas Infrastructure Europe data.

Mild weather delayed the need to turn on the heating in Europe's homes and commercial buildings, which normally accounts for around half of the region's annual gas needs.

The warm temperatures and plentiful supplies of liquefied natural gas helped the EU meet its short-term energy security goals. Gas storage is 95.5% full, ahead of an 80% target. The bloc is aiming for a 15% voluntary cut in gas use from August through March 2023, which is being overshot for now. Gas demand in October was 71% of average levels for the past five years, according to the Oxford Institute for Energy Studies.

Most of the savings came from gas-reliant manufacturers of products such as cement and fertilizer, who cut their use in response to rocketing energy bills.

Although overall industrial production in the eurozone has held up so far, high gas prices are a serious threat to Europe's manufacturing base. The spot price for LNG delivered to Europe is 107 euros a megawatt-hour, equivalent to about $111 -- down from a peak of around 350 euros in August, but up around sixfold from what used to be normal levels.

Attention is turning to the task of preparing for winter 2023. Ideally, Europe's gas storage tanks would be around 40% full at the start of April to be as prepared this time next year, according to calculations by the OIES. This scenario assumes supplies from Russian and non-Russian sources stay about where they are now.

Continued mild weather would help keep depletions to a minimum. In previous years when there were cold snaps, such as the "Beast from the East" in 2018, Europe used up to 73 billion cubic meters of gas. In milder winters it used between 45 to 53 bcm -- about what it needs to aim for today. Households are being prudent with energy now, but this will be harder if temperatures cool.

On the supply side, an easing of Beijing's zero-Covid policy could make it trickier to stock up next year, considering the shortfall in Russian pipeline gas. China imported around a fifth less LNG than it normally would so far in 2022, as parts of its economy were under pandemic restrictions.

The Kremlin may cut the roughly 60 million cubic meters a day of Russian gas flowing to Europe through two subregional pipelines. Half of this supply runs through the TurkStream pipeline toward Hungary and may be maintained due to Hungarian Prime Minister Viktor Orban's good relationship with the Kremlin. The other half flows through Ukraine into Europe. Russia could stop this to inflict more pain on the EU.

Although it represents a fraction of the region's total gas needs, any reduction would probably cause another jump in prices.

Europe has coped surprisingly well since recent sanctions on Russia, but it took both luck and largess: Bernstein estimates the EU will spend $100 billion on additional LNG spot purchases this year. The region's ability to pull off the same feat next year still hangs in the balance.” [1]

1.  Europe Needs Luck to Escape the Worst of Gas Crisis
Ryan, Carol. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 18 Nov 2022: B.11.