Europe’s energy crisis will continue for years, the industry warns | Popgen Tech

Europe’s energy crisis will drag on for years if the region fails to reduce demand and secure new gas supplies, according to new warnings from energy industry executives and analysts.

Mild autumn weather and a rush to fill storage sites across Europe have bolstered the region’s energy security this winter, but concerns are starting to mount over whether sufficient supplies will be available next summer and for the winter that follows.

“We are in a gas crisis, and we will continue to be in a bit of a crisis mode for the next two or three years,” said Sid Bambawale, head of liquefied natural gas for the Asia region at Vitol, the world s largest independent energy trader, speaking at the Financial Times Commodities Asia Summit in Singapore. “So let’s not develop a false sense of security.”

The warnings present European policymakers with an uncomfortable reality. Despite hundreds of billions of euros already being spent to ensure storage spaces are filled this winter and support is provided to households and businesses, the pressure on public funds as well as pain for households and businesses is likely to continue next year.

The renewed concern comes as gas flows from Russia have come to a near halt in response to Western sanctions over Vladimir Putin’s war in Ukraine. A fresh threat this week from Moscow to limit output from the only remaining pipeline linking Russia and Europe underscored the importance of locking in supplies from other world producers and taking steps to reduce fuel consumption by industry and households.

Kosuke Tanaka, head of Asian LNG origination at Japan’s energy trader Jera Global Markets, said: “The [gas] market is currently balanced with demand destruction, including fuel switching to oil and coal. And we will continue to need such demand response to balance the market in the coming years.”

Europe’s gas storage at the end of September, the time when demand for heating usually starts to increase, stood at around 90 percent this year, broadly in line with the previous five-year average of 86 percent, despite Russia largely cutting off gas supplies has. the past months.

In addition to the demand reduction – households and industries have cut demand by 13 percent year-to-date compared to the three-year average, according to think tank Bruegel – while the region has managed to import record amounts of LNG, helped by weak demand from China. China also exported excess LNG to Europe.

But high storage levels could lead to complacency and a slowdown in demand reduction, those in the energy industry argued. They also warn that Russian pipeline gas to Europe will drop to negligible levels next year, leading to a bigger gap to fill, while China may also gradually ease its zero Covid policy and consume more gas than last year.

Speaking at the FT summit, Vitol chief executive Russell Hardy said gas prices would need to remain high enough to suppress demand for fuel over the summer from industrial users to replenish storage and keep the lights on.

European gas prices averaged €108 per megawatt hour in 2023, more than four times the average of the previous decade.

“High prices will have to compress demand to a large extent every month from next summer. It’s not a good thing – it’s an absolutely horrible thing for European businesses and it’s the genesis of the recession,” he said.

A recent analysis by Paula Di Mattia, European gas market analyst at commodities consultancy ICIS, also showed that in five out of seven scenarios Europe could enter the winter of 2023-2024 with gas storage sites at only 65 percent of capacity, the lowest level at that point since at least 2016, when records began.

The analysis assumes that the majority of Russian pipeline flows to Europe will remain cut off, excluding the southern TurkStream pipeline.

Scenarios that would allow Europe to have adequate storage levels involve significant demand destruction, either in winter or throughout November 2022 to September 2023, as well as increasing LNG imports to 440 million cubic meters per day, more than this year.

“The challenges for replenishing storage during summer 2023 will depend highly on its use in winter 2022-2023,” said Di Mattia. “Continued demand destruction and high LNG inflows are key to maintaining a supply-demand balance throughout 2023.”

But Europe’s need for LNG may face infrastructure constraints, with years of underinvestment in fossil fuel-related projects.

Business consultancy FTI Consulting calculates that if the EU replaces all Russian gas with LNG, there is a total gap of 40 billion cubic meters per year in European regasification capacity – facilities needed to convert LNG back into gas – which could rise to 60 billion cubic meters per year in a cold winter.

FTI’s calculation does not take into account regasification capacity in the Iberian Peninsula as they have limited pipeline connections to the rest of Europe.

Countries such as Germany, the Netherlands, Italy, France and Croatia have pushed for new regasification terminals, including leasing floating storage and regasification units, or FSRUs.

In total, Europe could add 40 bcm per year of import capacity by October 2023, said Emmanuel Grand, senior managing director at FTI Consulting. But, he warned, “some of the projects are not supported by firm LNG commitments, and there are risks that these projects could be delayed.”