Nations face price crisis as heating gas runs short
FRANKFURT, Germany — Europe’s natural gas crisis isn’t letting up. Reserves are low. Prices are high. Utility customers are facing expensive bills. Major Russian supplier Gazprom isn’t selling gas like it used to.
It all raises the question: How exactly is Europe, which imports most of its energy, going to make it through the winter without a gas disaster, especially if the season turns out to be colder or longer than usual?
Here’s how the European Union, home to 447 million people, will try to deal with the crisis:
The problem is low storage levels: Utilities turn to gas stored in underground caverns to handle sudden additional demand for gas for heating or electricity. Europe started 2021 with gas storage only 56% full, compared with 73% a year earlier. The reasons vary: cold weather last winter, lack of Russian deliveries on the spot market and robust demand in Asia for liquid natural gas that comes by ship. Europe’s association of pipeline operators says cold weather would mean needing to import 5% to 10% more gas than the maximum volumes observed in recent years to avoid the risk of shutoffs.
As a result, gas prices have soared: The benchmark price in Europe is around 80 euros per megawatt hour, more than four times its level
of 19 euros at the start of 2021 and up from as low as 4 euros in 2020.
Europe is relying on high prices attracting more supply: Analysts at Rystad Energy used ship-tracking data last month to watch 11 tankers bringing liquid natural gas, or LNG, to Asia make U-turns in the middle of the ocean to take advantage of lucrative sales in Europe.
Russia hasn’t sent as much gas: State-owned Gazprom has sold less short-term gas and hasn’t filled as much of its European storage as it normally does, but Russian officials emphasize that that the company has met its supply obligations under long-term contracts.
Analysts believe Russia may be underlining its desire for Europe to approve the Nord Stream 2 pipeline to Germany that bypasses Poland and Ukraine.
The EU’s antitrust chief said Thursday that Gazprom’s limitations on supplies is “thought provoking” amid the
surge in prices, asking the company and other suppliers for an explanation. Competition Commissioner Margrethe Vestager described Gazprom’s attitude as a “quite rare behavior in a marketplace.”
If all else fails: EU legislation requires countries to help each other in the case of a gas shortfall. Governments can declare a gas emergency and shut off industrial customers to spare households, hurting the economy but sparing a humanitarian and political disaster.
In theory, they can demand cross-border gas supplies from each other. In recent years, Europe has built more reversible pipeline connections but not enough to cover the entire continent, leaving some countries more exposed than others.
Yet the system has never been tested, and there are questions about how willing countries would be to share gas in a crisis.