Europe has weathered an energy crisis, for now
LONDON — Within months of Russia’s invasion of Ukraine last year, there was near panic in Europe over energy supplies. Mainstay flows of natural gas through pipelines from Russia were dwindling to a relative trickle, pushing wholesale prices up more than 10 times the level of a year earlier. Oil prices were high. Lawmakers warned of fuel rationing and rolling blackouts, and winter loomed.
Now Europe has plenty of gas, much of it from Norway, the shale fields of Texas and Qatar. The price has tumbled below preinvasion levels and has continued to slip lower almost daily. Oil prices appear steady. There’s no longer talk of imminent rationing.
But it’s unclear if the danger has been banished, or whether the maneuvering last year that secured this position — when European countries seemed to spare no expense buying shiploads of expensive liquefied natural gas and China cut its energy needs as it shuttered its cities in “zero-COVID” lockdowns — will be needed again this year.
There are concerns that complacency has set in, and some leaders of the energy industry warn that Europe has been lucky this winter. They say the coming years, with a revived Chinese economy potentially sucking in more energy imports, may be more of a test.
“We are not out of the energy crisis in Europe — far from it,” said Wael Sawan, CEO of Shell, Europe’s largest energy company, on a recent call with financial analysts.
For now, a reliance on Russian energy that seemed more like a chokehold a year ago has significantly loosened. Russian gas supplies to Europe have been drastically reduced, and the region seems to be weathering recent bans on most Russian oil without a hiccup.
“Within a year, Europe has totally made itself independent from its biggest fossil fuel supplier,” said Henning Gloystein, director for energy at Eurasia Group, a political risk firm.
Bolstering the optimism: The coldest part of winter, when gas consumption soars, has passed with less economic
pain than many forecast. “Europe has appeared to survive without a deep recession, and appears to be in a better position than six to nine months ago,” said Michael Stoppard, chief strategist for global gas at S&P Global Commodity Insights.
Energy markets are much calmer than a few months ago, but European gas futures prices, at about 50 euros ($53) per megawatt-hour, are still more than double the levels of two years ago.
Analysts say that price level may be a new kind of normal, reflecting recent realities like competing with Asia for liquefied natural gas.
Plenty of experts say Europe has been fortunate this winter. Mild weather has helped reduce demand for gas, which is heavily used for heating in Europe, while Beijing’s COVID restrictions curbed China’s appetite for gas, pivoting many LNG shipments to Europe instead.
The worry is that next winter, colder temperatures combined with a resurgent, energy-hungry Chinese economy could put pressure on global gas supplies and cause prices to surge again.
“If China starts buying because they have opened up, and it is cold, then we are in trouble for the next couple of years,” said Marco Alverà, CEO of TES, which plans to build facilities for importing gas in Wilhelmshaven in northwest Germany. As a precaution, the German government is urging consumers to remain frugal with energy.
Experts like Alverà also say Europe has missed opportunities to lock up gas supplies from the United States with long-term contracts, largely because lawmakers don’t want to undermine climate goals aimed at reaching carbon neutrality by 2050. At the same time, Europe has failed to come up with a program like the Biden administration’s Inflation Reduction Act, which provides businesses with large tax breaks for clean energy investments.
Europe has “a lot of catching up to do,” said Alverà, a former CEO of Snam, an Italian gas transmission company.
In addition, gas production facilities around the world have been running flat-out with only modest additional supplies expected to come onto the market in the next two years. “Any supply disruption will have an impact on the market,” Anders Opedal, CEO of Equinor, the Norwegian oil company, told reporters in London recently. Norway last year replaced Russia as Europe’s largest gas supplier.
Europe, though, has taken steps that will leave it much better prepared than it was a year ago, analysts say. Once Russia invaded Ukraine, European policymakers quickly realized that decades of dependence on Russian gas had left them dangerously exposed. Governments and companies secured new sources in the form of LNG. Paradoxically, shipments of LNG from Russia also increased.
Governments also rushed to build terminals to receive the fuel. Germany, which had no LNG facilities before the war, has already put three terminals into service and plans three more by the end of this year. The construction moved at a speed previously unthinkable in a country notorious for red tape. The Netherlands and other European countries have also added or expanded such facilities.
Europeans also responded to calls to reduce gas consumption as much as possible, installing heat pumps to replace gas boilers and stoking wood-burning stoves. Some energy-intensive factories in industries like fertilizers, glass and steel also reduced production, contributing to a 14% drop in gas demand last year, according to S&P Global, a financial services firm. A big question is whether this steep cut in demand will prove permanent.