It now looks increasingly likely that Europe will make it through this coming winter with sufficient gas supply. But the International Energy Agency (IEA) has warned of a 30bn cubic metre supply-demand gap next year in its latest analysis.
“Europe could face a gap of as much as 30 bcm of natural gas during the key summer period for refilling its gas storage sites in 2023 … highlighting the need for urgent action by governments to reduce gas consumption amid the global energy crisis,” the Paris-based agency said in a report published on November 3.
Europe’s gas storage sites are currently filled to 95% of capacity, putting them five percentage points above the five-year average. But high storage levels, the recent drop in gas prices and unusually mild temperatures “should not lead to overly optimistic conclusions about the future,” the IEA said.
The agency warned that Europe’s success in filling storage sites this year benefited from factors that might not be repeated this year.
“These include Russian pipeline gas deliveries that, although they were cut sharply during 2022, were close to ‘normal’ levels for much of the first half of the year,” the IEA said. “Total pipeline supply from Russia to the EU in 2022 is likely to amount to around 60 bcm, but it is highly unlikely that Russia will deliver another 60 bcm of pipeline gas in 2023 – and Russian deliveries to Europe could halt completely.”
The IEA’s report also points to how much LNG China will free up for the European market. Chinese LNG imports are set for a record decline this winter, amid an industrial slowdown, in part caused by Beijing’s draconian COVID-19 policy. But the agency notes that the country’s LNG imports could well recover to their 2021 level next year, which would capture 85% of the anticipated increase in global supply that year, or around 20 bcm.
If Russian gas supply to Europe is halted completely, and if Chinese LNG imports ramp up, the IEA estimates that there will be a 30 bcm supply-demand gap for Europe, at a time when the continent will urgently need to restock on the floor for the following winter. This gap could represent nearly half of the gas needed to fill storage facilities to 95% of capacity by the start of next year’s heating period.
Not out of the woods yet
“With the recent mild weather and lower gas prices, there is a danger of complacency creeping into the conversation around Europe’s gas supplies, but we are by no means out of the woods yet,” IEA executive director Fatih Birol said. “When we look at the latest trends and likely developments in global and European gas markets, we see that Europe is set to face an even sterner challenge next winter.”
Governments need to carry out “immediate action,” Birol said, “to speed up improvements in energy efficiency and accelerate the deployment of renewables and heat pumps – and other steps to structurally reduce gas demand.”
“This is why governments need to be taking immediate action to speed up improvements in energy efficiency and accelerate the deployment of renewables and heat pumps – and other steps to structurally reduce gas demand,” Birol said. “This is essential for Europe’s energy security, the wellbeing of its citizens and industries, and its clean energy transition. The IEA will continue to work closely with the European Commission and governments across Europe and beyond to help tackle these challenges.”
Russia’s winter generals
Russia’s greatest weapon in the current standoff with the West over Ukraine has been its natural gas supply. Its army has performed badly in this war; its attempts to create a global political alliance against Western hegemony have failed; its economy is now in freefall. But the more that Moscow uses its gas as a weapon, the less leverage it has.
Russia has already cut gas supply to Europe by close to two thirds on a year-on-year basis in 2022. This will surely lead to a deep economic recession that will likely spread globally, and, ironically, this will also hurt the Russian economy when the prices of all commodities collapse, as they did after the 2008 financial crisis.
But so far Russia’s effort has not won any concessions from Europe. European governments continue to send increasingly more arms and funding to assist with Ukraine’s war effort. And the more that the Kremlin reduces its gas supply, the more Europe realises that a future without Russian gas supply is possible.
A lot will depend on the weather in the coming months. But so far the winter generals that defeated Napoleon and Hitler in their attempts to defeat Russia have not appeared. Europe, to date, is dealing with an unusually warm winter. Despite disruptions, global LNG supply is relatively ample. The Chinese economic slowdown, which has led the country to cut imports by a record percentage, has gifted Europe with a very convenient blessing. Countries across Asia are forgetting their climate commitments, for economic necessity. They are turning coal plants back on, and reducing their gas intake. And that unused gas is going to Europe.