Page 38 - bne magazine November 2021_20211104 uzbekistan risding

38 I Special focus bne November 2021
From Dutch earthquakes to a UK fracking ban: how declining European gas supply has contributed to the current crisis
bne IntelliNews
There are many underlying causes behind the current gas sup-
ply crisis unfolding in Europe.
A “V” shaped market has seen global gas demand surge on the back of the post-coronavirus (COVID-19) eco- nomic recovery, driven by growth in LNG imports in China and other Asian markets. Gas producers have been slow to ramp up output in response, while Russia’s Gazprom has faced criticism for keeping some supply back – whether simply to drive up prices or to put pres- sure on European regulators to clear the way for the launch of the controversial Nord Stream 2 gas pipeline.
However, there is another factor that many EU politicians are keen to dismiss as a cause: years of underinvestment in domestic gas supply. Gas production in Europe has been falling for decades. In 2020, European output excluding contri-
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butions from Russia and other CIS states amounted to just 218.6bn cubic metres, according to BP’s statistical review, down nearly 30% from the level in 2010.
Demand for gas has spiked this year as the business has been hit by a multiple whammy: Europe began 2021 with
low storage levels after the collapse in demand and prices in 2020; LNG has been largely drawn off to Asia by even higher prices; the demand rebound caused by a recovery from the coronacri- sis was far stronger than anyone antici- pated; and Russia’s Gazprom is running up against its production and export constraints. That created the conditions for prices to spike in the summer when it became clear the glut of 2020 was rapidly turning. And all this was made even worse by the sharp decline in the EU’s indigenous gas production. The fact that last year was the year the EU decided to
go over from long-term contracts to trad- ing gas on a spot market only removed a built-in cap on prices and freed gas prices to soar into the stratosphere. In short, the last two years have created a perfect storm for the gas market.
All of Europe’s biggest gas fields are
in decline. North Sea fields that were first developed in 1990s or even earlier are now mature, yielding less gas at an increasingly high cost. But many in the gas industry point instead to insufficient investment in new production, largely on account of environmental concerns. The EU’s new Green Deal has only
made a new problem much worse. The EU is eager to phase out the use of gas and other fossil fuels over the coming decades as it strives towards net-zero emissions by 2050. But as the current crisis has shown, for the time being con- sumption remains robust. But curtail-