Problems continue in the natural gas market: winter can be difficult in Europe

Europe enters the second winter with a delicate balance between supply and demand in which gas flows from Russia have decreased significantly.

According to experts, conditions in Europe are better than last winter, but weather conditions, reduced demand and developments in the global gas market will be decisive for security of supply and gas prices on the continent this winter. .

As European Union (EU) countries attempted to gradually reduce gas purchases from Russia after the Russia-Ukraine war, Russia largely cut off the flow of gas to the continent in response to sanctions. With the balance between supply and demand deteriorating, gas prices in Europe reached a record level and many countries implemented measures to reduce demand to ensure security of supply.

THE IMPORT OF LNG BROKE A RECORD

Europe broke a record by increasing its imports of liquefied natural gas (LNG) by 60 percent last year compared to 2021 to cover the Russian gas shortfall.

EU countries, which aim to reach 90 percent occupancy of gas tanks by November 1, 2023, to guarantee security of supply before this winter, reached these occupancy rates two months before the date planned.

According to data from Gas Infrastructure Europe, the occupancy rate of EU gas tanks currently stands at 96 percent. This rate corresponds to 112 billion cubic meters of gas. In these facilities, located in 18 of the 27 EU member countries, a total of 116 billion cubic meters of gas can be stored.

Although warehouse occupancy rates are at record levels, the massive disruption of Russian gas flows to Europe makes it necessary for the continent to continue measures to reduce gas demand by at least 15 percent and continue supplying LNG from global markets.

DECREASED BY 85 PERCENT

According to experts, in addition to the evolution of LNG demand and supply, weather conditions will also play a decisive role in the European gas markets.

Dmitry Marinchenko, senior director of Oil and Gas at credit rating agency Fitch Ratings, said that before the war began, Russia’s share of the European gas market was consistently above 30 percent.

Sharing the information that Russia’s daily gas supply to the EU in 2019 was 523 million cubic meters, Marinchenko said: “This figure increased to 413 million cubic meters per day in 2021 and to 186 million cubic meters in 2022. This year, European gas imports from Russia via pipelines average only 75 million cubic meters per day. “At an annual level, European gas imports from Russia may reach 27 billion cubic meters by 2023, that is, 7 percent of the total,” he said.

IN GOOD CONDITION COMPARED TO LAST YEAR

Ben McWilliams, energy and climate adviser at think tank Bruegel, said the EU is in a better situation on gas supplies compared to last year.

Noting that EU gas tank occupancy is high, McWilliams said: “Demand reduction continues at around 15 percent, more solar, wind and heat pumps are used, and import capacity from EU LNG is about 20 percent higher than last year. The risks to EU gas balances are incomparable to 12 months ago, but prices are 2-3 times above pre-crisis levels and it is clear that markets are still under stress. “The crisis is not over, but it is entering a new phase,” he said.

McWilliams noted that the main challenge for Europe this winter is to continue reducing gas demand. (AA)