- Europe has done most things it feasibly could to fill gas storage units
- Overall in the EU, gas storage was 92.37% full as of October 17
- Weather will be the determining factor in how fast gas in storage would be depleted
Europe’s gas prices fell at the start of this week to the lowest level in three months as storage is fuller than initially expected, LNG cargoes are coming in, and the weather is mild. But European governments have been preparing for the worst-case scenario in which a colder-than-usual winter could quickly sap gas in storage, send gas prices soaring again, intensify competition for costly LNG with Asia, break consumers’ resolve to conserve energy in freezing temperatures, and force more businesses and industrial processes to halt operations.
Europe has done all it can to ensure the heating and lights will be on this winter, analysts say. Yet this may not be enough—a long cold, windless spell this winter would threaten to unravel all the efforts and lead to mandatory energy-saving targets, rationing, or rolling outages.
The Good News
All that can be feasibly done to ensure alternative gas supply after the Russian invasion of Ukraine and the Russian halt of gas flows to nearly all EU member states has been done. Floating storage regasification units (FSRUs) are being set up in Germany, the Netherlands, and Finland. Eemshaven in the Netherlands and Wilhelmshaven and Brunsbüttel in Germany are expected to begin operations as early as the end of this year. Europe is paying a lot for LNG supply, outbidding Asia, which was the top buyer of spot cargoes before the war.
Germany, Europe’s biggest economy and until recently Russia’s top gas customer, saw its storage hit 95% full two weeks ahead of schedule amid higher-than-typical filling of gas storage sites across Europe.
Overall in the EU, gas storage was 92.37% full as of October 17, with Germany’s storage at over 96% full, a target Berlin expected to reach by November 1. Italy’s gas storage is 94% full and France’s is at over 98%, according to data from Gas Infrastructure Europe.
Moreover, France started sending natural gas directly to Germany last week in an attempt to alleviate the energy crisis in Europe’s biggest economy as the EU encourages solidarity among member states in natural gas supply.
Additional easing of the gas emergency concerns in Europe came from the Copernicus Climate Change Service, whose latest weather model suggested last week that most of Europe was more likely to face mild temperatures than a deep freeze this winter. Despite forecasts of a warmer than usual winter, there’s a greater chance of a cold windless snap as soon as in November and December, the service says. Low wind speeds would mean that most of northwest Europe, which relies on wind for power generation, may have to resort to other sources of power generation, exhausting the precious gas supply.
The Bad News
Weather will be the determining factor in how fast gas in storage would be depleted, so Europe hopes for the best and prays for a milder winter.
“Barring catastrophes, such as extremely cold weather, if we keep consumption in check, we’ll get through the winter fine. We just have to hope nothing goes wrong,” Italy’s Energy Transition Minister Roberto Cingolani told The Wall Street Journal.
Unfortunately for Europe, many things can go wrong. A very cold winter is just one of them.
Russia could suspend gas exports if the EU implements a price cap on Russian gas, Gazprom’s CEO Alexey Miller said this week. Russia still exports gas to Europe via one link through Ukraine and through TurkStream.
The Uncertainties
Another uncertainty in supply could come from China, whose LNG importers are reportedly told to stop reselling LNG cargoes to gas-starved Europe, in what could be a blow to the European hopes of continuous high inflows of LNG as the winter approaches.
On the demand side, it’s uncertain how European consumers will react to the incessant calls for energy savings when temperatures plunge and governments hand out aid to households to help them pay their soaring bills. Government-backed bill support schemes could actually discourage consumers from saving on gas and electricity, some analysts argue.
The first colder-than-normal week this autumn saw Germany failing the energy-saving test at the end of September. In the last week of September, when the first colder wave hit, German households and small businesses used nearly 10% more gas than the four-year average for that week, the regulator said.
“Without significant savings, also in the private sector, it will be difficult to avoid a gas shortage in the winter,” the agency’s president Klaus Müller said.
Germany’s gas storage may be nearly full, but it will not see Europe’s largest economy through the winter, the regulator says.
Demand destruction due to the very high gas prices is somewhat helping with savings, but it comes at the cost of deindustrialization as many factories and energy-intensive industries have been forced to curtail, halt, or relocate production. Energy-intensive industries in Europe, including aluminum, copper, and zinc smelters and steel makers, have already warned EU officials that they face an existential threat from surging power and gas prices.
Due to sky-high prices and a very tight gas market, natural gas usage in the power-generating sector in Europe is forecast to drop by nearly 3% this year. Industrial gas demand is expected to plunge by as much as 20%, the International Energy Agency (IEA) said in its quarterly Gas Market Report early this month.
The winter of 2023/2024 could be even more difficult for Europe’s gas procurement as the energy crisis will not be “a one winter story,” the IEA and analysts have warned.