Page 5 - EurOil Week 42 2022

EurOil COMMENTARY EurOil

Will Europe's energy supply allow

it to make it through the winter?

Europe will most likely make it through this winter, but next winter will be more challenging.

EUROPE EUROPE has filled its gas storage facilities to Norway. The giant Groningen field in the Neth-
close to 95% of capacity, and while gas prices are erlands could provide as much as 15-20bn cubic
WHAT: still very high, they are substantially down from metres per year of gas, but so far the Dutch gov-
How Europe’s energy previous spikes. How the continent’s energy sys- ernment has ruled out ramping up production
system will fare this tem will fare this winter, however, will depend on because of the risk of causing earthquakes.
winter will depend on a number of factors – many of which are highly A lot of hope has therefore been invested in
a number of factors – unpredictable. LNG, in terms of how much extra supply can
many of which are highly be brought on stream and how much volume
unpredictable. Supply side can be diverted away from Asian markets. For
To name the biggest factor first, it will depend the time being Chinese LNG demand remains
WHY: on how severe the winter weather proves to be, low, because of a slowdown in industry, with the
Besides the weather, it which is very hard to predict. Not only would country on track for its biggest decline in LNG
will depend on Russian a cold winter increase the need for heating; a imports in history this year. That has eased pres-
and other gas supply, low-precipitation winter would result in low sure on European supply so far, and Chinese
the performance of other hydroelectric power generation, and a still importers have even been reselling contracted
energy sources and winter would lead to less wind power output. volumes to Europe. But the situation could easily
demand reductions. Regardless of the weather, there is then the change. And then there is the risk of supply dis-
uncertainty about how effectively France can ruptions, like the one that occurred at the Free-
WHAT NEXT: resolve its nuclear outages. A union strike cur- port LNG plant in Texas earlier this year.
Europe’s gas storage rently underway that has affected nearly a third One must also consider the demand side of
volumes will likely be of France’s nuclear reactors has not helped mat- the equation. High gas and power prices have led
heavily depleted by the ters, delaying important maintenance work. to significant demand destruction already – at a
end of winter, raising Then there is the outlook for natural gas sup- great cost to industry particularly in Germany.
questions about how ply into Europe. The upside for Russian supply The European Commission has been trying to
quickly it can reinject gas is now very limited, as the suspected sabotage at co-ordinate reductions so no sector suffers too
for the following winter. the Nord Stream 1 and 2 pipelines means that at greatly.
least three of the four pipeline strings will be out Natural gas and power demand are extrinsi-
of service for months, if not longer. Already, Rus- cally linked – gas-fired power plants accounted
sian gas supply is under 20% of the level in 2021. for a fifth of Europe’s generation mix in 2021.
There is, however, a downside for Russian And so in order to reduce demand for the for-
gas. Moscow could cut off deliveries entirely to mer, demand for the latter must also be cut. But
apply further geopolitical pressure on Europe. while the European Commission is targeting
Or the fresh dispute between Ukraine and Rus- a voluntary 15% cut in gas demand over the
sia over transit payments could heat up. With August 2022 to March 2023 period, it has only
Nord Stream offline, and the Yamal-Europe proposed a voluntary reduction of 10% in gross
pipeline rendered inoperable by sanctions, the electricity consumption, as well as a mandatory
Ukrainian transit system and the smaller Turk- target for cutting electricity usage by 5% during
Stream are the only routes left for Russian gas. If peak hours. It may well be prudent to expand
TurkStream were left open, which seems likely, these targets, to avoid the risk of supply short-
Europe would be left with less than 10% of the ages, and national governments must follow the
gas that it received from Russia last year. same course.
Meanwhile, there are limited prospects There also needs to be an increased focus on
for increased supply from North Africa in the energy efficiency – getting the same result for
near future, and only small incremental vol- lower consumption – but also energy conserva-
umes potentially available from Azerbaijan and tion – avoiding energy use when it is not vital.

Week 42 20•October•2022 www. NEWSBASE .com P5