Page 7 - FSUOGM Week 33 2022

FSUOGM COMMENTARY FSUOGM

The Astora natural
gas storage facility in
Germany.

sent off to Canada for repair. The turbine is now $30bn if the European Commission’s ambition
stuck in a German port awaiting delivery back of taking utilisation even higher to 90% before
to Russia. Berlin claims there are no remain- winter is realised.
ing obstacles to its return, accusing Moscow of Were Russia to cut off gas supply to Europe
blocking the process. But Russia has said it lacks entirely, as some leaders have warned, the sit-
the paperwork to receive the turbine, demand- uation would of course become radically dif-
ing reassurances that sanctions will not prevent ferent. How significant the impact would be
the repair and return of additional equipment. would depend greatly on the weather ahead and
The situation has been exacerbated by scorch- the availability of LNG. Global LNG supply is
ing summer weather across the continent, which already at a record level of capacity, raising ques-
has led to soaring energy demand for cooling tions about how many extra shipments the EU
systems, and has caused water levels to drop rap- can procure.
idly, hampering the transport of energy goods The outlook going forward will also depend
such as coal and triggering a slump in demand on the EU’s success in curbing gas demand to
at hydroelectric plants. save supplies for the heating season. So far, Brus-
Lower wind power output has also made sels has only asked member states to impose 15%
the situation worse, with generation at German voluntary cuts in consumption until the end of
wind farms dropping close to zero for periods next winter. But those cuts could become man-
on August 16. French nuclear outages continue, datory if the European Commission decides it is
while Norway has had to cut its gas supply to necessary if the risk of winter shortages becomes
the continent because of field maintenance, and extreme, though the mandate would still need to
its government has warned it may have to limit be approved by member states. In any case, many
power exports to the rest of Europe because of member states will be able to secure exemptions
low water levels at its hydroelectric dams. from a mandated cut, under a watered-down
Data published by Gas Infrastructure version of the Commission’s proposal that was
Europe shows that EU gas storage facilities signed off on by national governments last
reached 74.74% of capacity on August 13. Gas month.
storage injection rates have largely followed Meanwhile, European countries have been
the average trend for the last two months, even jacking up energy bills for consumers in order to
though the cost of storing those volumes has avoid suppliers falling into bankruptcy because
been increasing. The EU has mandated that of soaring purchase costs – a fate that Uni-
bloc members fill their facilities to 80% of per narrowly avoided thanks to a bailout deal
capacity by the end of October, but the market reached with the government. The price cap for
has largely done governments’ work for them, energy bills in the UK, for example, is expected
as traders have been stockpiling gas because to exceed GBP4,000 ($4,800) this winter, accord-
they anticipate even higher prices this winter ing to analysis from Cornwall Insight, and the
(see chart). rising cost has led to protests across the coun-
Bringing storage volumes to 80% of capac- try. Similar actions are taking place elsewhere in
ity is realistic, but the cost will be staggering at Europe. European leaders face two main chal-
today’s spot prices. Futures contracts at TTF lenges this winter: preventing their energy sys-
have remained above $2,000 per 1,000 cubic tems from collapsing and avoiding mass unrest
metres and at times significantly higher since late among the populace, all while the soaring cost of
July. At this price, it would cost roughly $10bn energy risks plunging the continent into a deep
to reach the EU target, and the bill would rise to recession this winter. ™

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