Page 4 - FSUOGM Week 42 2022

FSUOGM COMMENTARY FSUOGM

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 potentially available from Azerbaijan and Nor-
close to 95% of capacity, and while gas prices are way. The giant Groningen field in the Nether-
WHAT: still very high, they are substantially down from lands could provide as much as 15-20bn cubic
How Europe’s energy previous spikes. How the continent’s energy sys- metres per year of gas, but so far the Dutch gov-
system will fare this tem will fare this winter, however, will depend on ernment has ruled out ramping up production
winter will depend on a number of factors – many of which are highly because of the risk of causing earthquakes.
a number of factors – unpredictable. A lot of hope has therefore been invested in
many of which are highly LNG, in terms of how much extra supply can
unpredictable. Supply side be brought on stream and how much volume
To name the biggest factor first, it will depend can be diverted away from Asian markets. For
WHY: on how severe the winter weather proves to be, the time being Chinese LNG demand remains
Besides the weather, it which is very hard to predict. Not only would low, because of a slowdown in industry, with the
will depend on Russian a cold winter increase the need for heating; a country on track for its biggest decline in LNG
and other gas supply, low-precipitation winter would result in low imports in history this year. That has eased pres-
the performance of other hydroelectric power generation, and a still sure on European supply so far, and Chinese
energy sources and winter would lead to less wind power output. importers have even been reselling contracted
demand reductions. Regardless of the weather, there is then the volumes to Europe. But the situation could easily
uncertainty about how effectively France can change. And then there is the risk of supply dis-
WHAT NEXT: resolve its nuclear outages. A union strike cur- ruptions, like the one that occurred at the Free-
Europe’s gas storage rently underway that has affected nearly a third port LNG plant in Texas earlier this year.
volumes will likely be of France’s nuclear reactors has not helped mat- One must also consider the demand side of
heavily depleted by the ters, delaying important maintenance work. the equation. High gas and power prices have led
end of winter, raising Then there is the outlook for natural gas sup- to significant demand destruction already – at a
questions about how ply into Europe. The upside for Russian supply great cost to industry particularly in Germany.
quickly it can reinject is now very limited, as the suspected sabotage at The European Commission has been trying to
gas for the following the Nord Stream 1 and 2 pipelines means that at co-ordinate reductions so no sector suffers too
winter. least three of the four pipeline strings will be out greatly.
of service for months, if not longer. Already, Rus- Natural gas and power demand are extrinsi-
sian gas supply is under 20% of the level in 2021. cally linked – gas-fired power plants accounted
There is, however, a downside for Russian for a fifth of Europe’s generation mix in 2021.
gas. Moscow could cut off deliveries entirely to And so in order to reduce demand for the for-
apply further geopolitical pressure on Europe. mer, demand for the latter must also be cut. But
Or the fresh dispute between Ukraine and Rus- while the European Commission is targeting
sia over transit payments could heat up. With a voluntary 15% cut in gas demand over the
Nord Stream offline, and the Yamal-Europe August 2022 to March 2023 period, it has only
pipeline rendered inoperable by sanctions, the proposed a voluntary reduction of 10% in gross
Ukrainian transit system and the smaller Turk- electricity consumption, as well as a mandatory
Stream are the only routes left for Russian gas. If target for cutting electricity usage by 5% during
TurkStream were left open, which seems likely, peak hours. It may well be prudent to expand
Europe would be left with less than 10% of the these targets, to avoid the risk of supply short-
gas that it received from Russia last year. ages, and national governments must follow the
Meanwhile, there are limited prospects for same course.
increased supply from North Africa in the near There also needs to be an increased focus on
future, and only small incremental volumes energy efficiency – getting the same result for

P4 www. NEWSBASE .com Week 42 20•October•2022