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FSUOGM COMMENTARY FSUOGM
Europe faces “tightrope”
in prepping energy
system for winter: OIES
Whether or not the European energy system fails, will depend a lot on the weather and other factors outside its control this winter
EUROPE
WHAT:
Europe stands on a tightrope in securing its energy supply this winter, and weather, LNG and Russian flow will be the deciders.
WHY:
A report by OIES outlines the six ways that Russia has curtailed gas supply over the last year.
WHAT NEXT:
In a mid-case scenario, Europe should be able to meet its storage requirements ahead of the onset of the winter heating season.
EUROPE faces having to walk across a “tight- rope” during the coming months in preparing its energy system for the winter, as Russian gas supply remains constrained and a lot will depend on how much LNG can be secured and seasonal weather factors, according to a study published on August 5 by the Oxford Institute for Energy Studies.
With Russian gas flow set to remain at the current record low, and limited upside for Euro- pean gas production and non-Russian pipeline supply, “the balance of the European market will rest on the availability of LNG cargoes, the potential for both bottlenecks in some EU mem- ber states and new regasification capacity (in the form of FSRUs) in others, and the extent to which a combination of high prices and govern- ment policy will curb demand, in parallel with the influence of seasonal weather factors that could support or undermine those conservation efforts,” the report’s author Jack Sharples said.
“Europe will spend the next two-to-three months preparing for a winter in which it will undertake the gas market equivalent of perform- ing a tightrope walk between two high buildings: if conditions are benign, the feat is achievable, albeit nerve-wracking,” the report stated. “If not, Europe could be buffeted by strong winds that portend winter wholesale gas prices even higher than those seen in winter 2021-2022.”
How Russian gas cuts took shape
Sharples pointed to six ways that Russia gas supply to Europe has been curbed over this year
and last, exacerbating the market’s tightness and causing prices to soar.
First, Gazprom did not replenish its gas storage facilities in Europe during the sum- mer of last year. Across Europe, including in Russia, there was a significantly cold winter in early 2021, causing most storage stocks to be depleted more than usual. But that sum- mer Gazprom, which at that time controlled 10% of gas storage capacity in Europe, only replenished its facilities in Russia, and not elsewhere.
Secondly, Gazprom limited spot sales in Europe during the first three quarters of 2021 and then halted them altogether in mid-October, restricting the amount of gas it sent to Europe to only the contractual amount.
Thirdly there came the Kremlin’s end-of- March decree, stipulating that European gas buyers, at least in so-called “unfriendly states,” had to pay in the Russian currency for their gas. Despite appeals by the European Commis- sion, most buyers complied with the demand, but some did not. As a result, Poland’s PGNiG and Bulgaria’s Bulgargaz lost their supply on April 27, followed by Finland’s Gasum on May 21, the Netherlands’ GasTerra on May 31, and Denmark’s Orsted and Germany’s Shell Energy Europe on June 1. Gazprom halted supply to Latvia’s Latvijas Gaze on July 30, citing “a vio- lation of the conditions established for gas withdrawal,” without elaborating on detail. But supply to that country has since been restored. Sharples estimates that the cancellation of these
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w w w . N E W S B A S E . c o m Week 32 11•August•2022