How the EU is trying to combat its natural gas crisis

The European crisis of natural gas has not sent. Reserves are low. The prices are high. Consumers receive higher rates for their supplies. The important Russian supplier Gazprom does not sell gas as before.

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

Here’s a look at how you’ll try the European Union (EU), home to 447 million people, weather the crisis:

The problem is the low levels of reserves

Utilities turn to gas stored underground to meet sudden additional demand for gas for heating or electricity production. But Europe started 2021 with its reserves at just 56%, compared to 73% the year before.

The reasons are varied: a cold winter the previous year, lack of Russian deliveries and strong Asian demand for liquefied natural gas, which is transported by ship. The European association of gas pipeline operators pointed out that the arrival of the cold weather could require imports of between 5% and 10% more than the maximum volumes of recent years to avoid the risk of supply cuts.

As a result, prices have risen

The reference price in Europe is about 80 euros per megawatt hour, more than four times the 19 euros at the beginning of 2021 and the 4 euros of 2020. Prices have fallen after reaching nine times the price at the beginning of last year. That spike in prices has been noted in bills, to the alarm of consumers and politicians.

Europe depends on high prices to attract more supply

Rystad Energy analysts used ship-tracking data last month to track 11 tankers carrying liquefied natural gas to Asia that turned mid-ocean to take advantage of lucrative sales in Europe.

With prices so high, carriers were tempted to divert European cargoes even if they had to offer 100% of the price as compensation, according to analysts at data firm Energy Intelligence.

“I wouldn’t say that liquefied natural gas is 100% sufficient, but it will play a very important role” in solving Europe’s energy needs, said Xi Nan, head of liquefied natural gas markets at Rystad. However, he noted, this “depends on how much Europe is willing to pay.”

Russia has not sent as much gas

State firm Gazprom has shipped less gas on short-term orders through pipelines through Poland and Ukraine, and has not replenished European stockpiles as much as it usually does, though it appears to be honoring its long-term contracts.

Analysts believe that Russia could be emphasizing its interest in authorizing the commissioning of the Nord Stream 2 gas pipeline, which reaches Germany without passing through Poland and Ukraine. There are also growing tensions with Europe over the deployment of Russian troops near the Ukrainian border.

Letting reserves drop too low can be a problem

When the underground reserves are depleted towards the end of winter, the pressure drops and the gas comes out more slowly. That means that even if reserves don’t drop to zero, they may supply gas too slowly to cover a sudden spike in demand.

A mild winter is crucial

For now, the weather in Europe and Asia has been relatively mild, more liquefied gas is on the way and high prices have forced the industry to cut production to lower consumption. Meanwhile, Norway, one of Europe’s suppliers, has delivered more gas by pipeline.

“That means we can get through this winter with Russian flows this low,” said James Huckstepp, Europe, Middle East and Africa director of gas analysis at S&P Global Platts. “I would not say that the crisis has been avoided yet, because there is still the risk of low temperatures, and there is very little margin for reserves.”

If there is an unexpected cold snap, “you go to a more extreme scenario, and there could be forced gas outages. It would start with the industry, but at some point consumers would be at risk,” Huckstepp said.

in the short term

Several European governments have offered cash subsidies to consumers to soften the blow. Sweden joined last Wednesday by announcing an item of 6,000 million crowns (US $ 661 million) in aid for households most affected by the increase in the price of electricity.

in the long run

The solution is more investment in renewable energies such as wind and solar. However, officials admit that gas will play a role for years during that transition.

Political instability in Kazakhstan does not contribute

The resource-rich Central European country supplies the European Union (EU) with oil, but not gas. The flow of crude was not affected by the protests initiated by the high price of fuel, which soon spread in a reflection of a more general dissatisfaction with the Kazakh authoritarian government.

Europe remembers what a difficult winter means

A cold snap at the end of winter in 2018 sent energy prices skyrocketing. Great Britain then warned that some industrial activities that used electricity produced with natural gas could suffer supply cuts. It did not happen, but nobody wants to see that situation.

Nor is it a repeat of January 2009, when a price dispute between Gazprom and Ukraine cut off supplies to Europe for two weeks. In Sarajevo, the capital of Bosnia-Herzegovina, heating gas was cut off to 70,000 apartments, forcing people to stay with relatives and depleting radiators in shops.

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 cut off the flow to industrial customers for the benefit of households, hurting the economy but averting a humanitarian and political disaster.

In theory, partners can order gas supplies from each other. Europe has built more reversible pipelines in recent years, but not enough to cover the entire continent, leaving some countries more exposed than others.

But the system has never been tested and there are questions about how willing countries would be to share gas in a crisis. The European Commission, the executive branch of the EU, is working to revise rules to include joint gas purchases on a voluntary basis, said Ruven C. Fleming, an energy law blogger and assistant professor at the University of Groningen in the Netherlands.

The review “is a pretty clear indication that even those who approved the mechanism don’t think it worked very well,” Fleming said.