A rapid energy shock was brought on by Russia’s invasion of Ukraine 18 months earlier. There were concerns that Europe’s energy infrastructure would not be able to withstand winter 2022 – 2023, causing economies to collapse, given the prospect of significantly less Russian gas.
However, a mild winter and the progressive implementation of the EU’s plan to cut back on energy use and purchase more from other suppliers caused it to come out on the other side shaken but unbeaten.
Without significant power shortages, Germany, Italy, and another gas-reliant countries shifted from Russian dependence. There have been more positive developments since next. While gas storage levels in Europe reached 90 % capacity three months before the November target and may even reach 100 % in September, energy prices have steadily decreased in 2023.
2020 – 23 European gas prices ( US $/ MMBtu )
The worst of the power crisis is over, according to officials like Robert Habeck, the European energy secretary. But as we’ll view, it’s too soon to be so sure.
fresh flaws
Between the beginning of 2022 and early 2023, the proportion of EU piped gas imports from Russia decreased from 39 % to just 17 %. The EU now depends much more on liquefied natural gas ( LNG ) shipments than it did in the past to deal with this change.
In the midst of a quick infrastructure upgrade that aims to increase LNG capacity by one-third between 2021 and 2024, LNG’s overall share of EU gas imports increased from 19 % in 2022 to about 39 % in that year. ( In fact, Russia still imports 13 % of the EU’s LNG, and its shipments have grown significantly since the invasion. )
Due to the rise in LNG, European nations are now more susceptible to market volatility, especially since 70 % of these goods are purchased on short notice rather than through the long-term oil-indexed deals that are common in Asia.
For instance, due to worries about strikes at American LNG plants, we’ve seen Europe’s forecast gas price tick upward in subsequent weeks. This demonstrates that supply is still scarce and that our very connected global market is susceptible to numerous problems.
The EU Energy Platform, an This software that makes it simpler for provider companies in part states to simultaneously purchase the energy, was introduced by the European Commission to integrate demand for LNG.
But, because this instrument has not yet been tested, it is unclear what amount of items can be channeled through it. The market is also concerned that this type of state intervention could fail and harm the market’s ability to function.
In terms of pipeline gas, Norway has surpassed Russia as the top supplier in Europe, meeting 46 % of the demand by the beginning of 2023( up from 38 % the previous year ). Norway’s fuel system is under strain as a result of this additional weight.
Delay in repair work in May and June led to slow travels that increased prices, demonstrating once more how constrained the European market is right now. It appears very likely that Norway’s extensive repair job will result in additional obstacles in the future.
Meanwhile, it is still anticipated that the EU will need to purchase approximately 22 billion cubic meters( billion ) from Russia this year. That is roughly 11 % of all the network fuel used by the alliance in 2022. A significant portion is traveling through Ukraine, and this supply course is in danger because the current Russia-Ukraine travel arrangement is unlikely to be renewed after it expires in 2024.
According to the International Energy Agency( against a target of 15 %), the EU was able to cut gas consumption by 13 % in 2022 as part of the shift away from Russia. War-weary EU state does not perform so well on this front in the months to come.
The fact that prices have decreased or that some states didn’t carry their weight last autumn will certainly help. Eastern nations like Poland, Romania, and Bulgaria did much to lower usage, while only 14 out of 27 EU members implemented mandatory power reduction plans. Calls for cooperation may be undermined if there is a natural gas shortage in western Europe this winter.
What follows
The harsh truth is that in order to prevent major gasoline price spikes, Europe will have to wish for moderate weather across the northern hemisphere for at least another two or three winters without significant disruptions to global LNG supply.
Yet as things stand, the long-term regular for gas prices in Europe is still about 50 % higher than it was prior to the invasion, which is detrimental to both consumers and businesses. With its energy-intensive mechanical and chemical industries, Germany, the industrial powerhouse of the EU, finds this to be especially significant. There are growing worries that as energy-intensive sectors move elsewhere, continued high energy costs could encourage de-industralization.
The good news is that oil stress may at least decrease starting in the middle of 2020. In the US and Qatar, major new LNG products will become available, and the business will rebalance. The energy reduction plan calls for a 40 % reduction in European gas demand by 2030.
By the end of the decade, there is even speak of a offer abundance, depending on how quickly solar power is being deployed in Europe and how many new nuclear power plants are being built. Europe’s need to buy gas may be significantly reduced as a result, but this can only occur if the bloc coordinates well.
We witnessed what could be accomplished in the months following the invasion when France provided gas to Germany to lessen its reliance on Russia, and afterward Germany provided more electricity to European cities to assist with outages brought on by nuclear reactor maintenance.
The difficulty lies in decarbonizing using the same strategy. The German-led” Friends of Renewals” group, which supports using just solar energy, is opposed by France as it works to win support for nuclear development both at household and elsewhere in Europe. These units could prove to be a significant barrier to the more swift energy transition away from fossil fuels.
Europe has thus been able to move away from Russia’s network gas, but unless it drastically lowers its oil demand in the years to come, it will still be subject to the volatility of global gas markets.
Michael Bradshaw is a professor of international electricity at the University of Warwick’s Business School.
Under a Creative Commons license, this post has been republished from The Conversation. read the article in its entirety.