The first year of the Russia-Ukraine War was the ‘year of firsts’ in the gas markets

While the gas markets at the center of the energy crisis witnessed extraordinary developments in the first year of the war Russia launched in Ukraine on February 24, 2022, efforts to replace Russian gas, especially in Europe, brought ‘scoops’ of new infrastructure. investments to record cost increases.

Although the imbalance between supply and demand that emerged in the summer of 2021, when the economies began to recover after the Covid-19 epidemic, led to the start of the energy crisis, the post-war crisis that Russia began in Ukraine on February 24 . 2022 deepened.

Faced with the embargoes imposed on Russia by Western countries, Russia also considerably reduced the flow of gas, especially to Europe.

Although the European Union (EU) took various measures to fill natural gas reserves, find alternative sources and reduce dependence on Russian gas, the extraordinary situation in the markets caused gas prices to reach record levels.

INCREASE OF OVER 1000 PERCENT!

The price of futures contracts traded on TTF, the deepest natural gas trading point in Europe based in the Netherlands, stood at EUR 30 per megawatt hour in September 2021, has risen steadily over the course of a year, increasing by more than 1000 percent. per megawatt hour in August 2022. It went up to 346 euros.

The price of natural gas per megawatt hour was 87 euros on February 23, the day before the start of the war.

Higher-than-expected occupancy rates in EU gas storages and lower gas demand due to mild weather conditions averted potential gas restrictions this winter and led to lower prices.

On the TTF, gas is trading at around EUR 50 per megawatt-hour for contracts with an expiration date of April 2023.

While measures taken to reduce Russia’s reliance on gas in Europe and new infrastructure investments stand out as many “firsts” in the gas market, EU gas imports from Russia fell by 76 percent. in a year.

EU LNG IMPORTS FROM US RISE BY 143 PERCENT

Ana Maria Jaller-Makarewicz, a European analyst at the Institute for Energy Economics and Financial Analysis (IEEFA) research institution, evaluated the extraordinary period experienced in the gas markets in the first year of the war for the AA correspondent.

Stating that 40 percent of Europe’s gas imports came from Russia before the war in Ukraine, Jaller-Makarewicz claimed that the 60 percent increase in liquefied natural gas (LNG) imports from Europe was effective for reduce this dependency.

Jaller-Makarewicz stated that Europe’s LNG imports from the US increased 143% in 2022, Qatar’s foreign purchases increased 23% and Russia’s LNG purchases increased 12% compared to 2021 last year. .

Stating that the largest buyers of Russian LNG in Europe are France, Spain, Belgium and the Netherlands, Jaller-Makarewicz said: “French, Spanish and Belgian LNG imports from Russia increased by 55 percent in total. Croatia, Lithuania, Portugal, Sweden and the UK have drastically reduced their purchases of Russian LNG in the past year. As of January 1, 2023, the UK stopped importing Russian LNG entirely,” he said.

Jaller-Makarewicz stated that the increase in LNG purchases in Europe drove LNG prices to record levels in the spot market and led to supply congestion, adding that “LNG is now defined as an expensive global sector, risky and volatile.

INVESTMENT DECISIONS IN LNG INFRASTRUCTURE FROM 7 COUNTRIES

Stating that in the first year of the war, new measures were taken to reduce demand and improve import infrastructure to reduce Europe’s reliance on Russian gas, Jaller-Makarewicz said: “At least 11 countries have decided to limit or ban the use of fossil fuels for heating until 2027.

Heat pump sales break records, heat pump sales in Europe doubled to 3 million in 2019. 41.4 gigawatts of new installed solar capacity in the EU.

This figure means an increase of 47 percent compared to 2021. It is expected to add 50 gigawatts of solar capacity this year and 86 gigawatts in 2026.

Jaller-Makarewicz continued as follows:

“Germany has intensified its plans for 6 floating LNG storage and gasification units (FSRUs) as it plans three LNG land terminal projects. Snam is currently developing two FSRU projects in Italy and some potential new land terminals are also being evaluated.

Finland and Estonia quickly decided to develop a joint FSRU project. In addition, the Paldiski LNG terminal project in Estonia was completed.

France announced one FSRU and Greece announced two FSRU projects.

The Croatian government has decided to increase the capacity of the Krk LNG terminal from 2.6 billion cubic meters to 6.1 billion cubic meters per year. The floating LNG terminal with an annual capacity of 8 billion cubic meters in the Netherlands in Eemshaven and the LNG terminal in Wilhelmshaven with a capacity of 7.5 billion cubic meters, developed by Uniper, the first LNG terminal in Germany, they came into operation in 2022.

Jaller-Makarewicz, who said that especially the expansion of LNG infrastructure poses a big risk for Europe in the coming years, said: “With the achievement of the EU renewable energy targets, the demand for LNG will be around 150 billion cubic meters in 2030 and this figure is below the demand of 175 billion cubic meters in 2022. This means that the utilization rates of LNG terminals in Europe will fall to 40 percent,” he said.

FROM 12 BILLION EUROS TO 100 BILLION EUROS

Brussels-based think tank Bruegel research analyst Giovanni Sgaravatti also claimed that in the first year of the Russia-Ukraine War, the European energy sector simultaneously displayed “structural weakness and adaptability”.

Stating that Russia is trying to exploit this vulnerability, Sgaravatti said: “Russia started emptying gas tanks in the EU from the summer of 2021 and the EU needed an additional 33 billion cubic meters of gas to fill the tanks. Subsequently, Russia reduced its gas imports to the EU by 76 percent in 2022. The EU was able to deal with this by reducing gas demand by more than 10 percent and almost doubling its LNG imports.” he said.

Sgaravatti listed the important “firsts” in the gas markets in the first year of the war:

“For the first time, the price of TTF gas increased by 10 to 15 times compared to its normal level and reached historical levels. As a result, filling up petrol tanks cost the EU €100 billion for the first time, an annual average of €12 billion over the last 10 years. Also, for the first time, the two main gas lines between Russia and the EU, Nord Stream and Yamal, were paralyzed for almost two weeks. Normally, the suspension of activities for this period was for maintenance work, but this time the lines were disabled due to attacks on the pipelines in deep water. This is the first time that the LNG infrastructure across Europe has been expanded in such a short time.”

Noting that the EU imposed an embargo on Russian coal, crude oil and petroleum products for the first time, Sgaravatti stressed that the EU’s dependence on Russia, which is 40 percent in gas consumption, 25 percent on oil, 15 percent on petroleum products, and 60 percent on coal, has been eliminated.

Sgaravatti, for his part, warned that gas prices, which entered a downward trend after historical levels, may increase in the summer period when natural gas tanks are replenished. (AA)