Rapidly depleting gas reserves and supply cuts from Moscow have sparked a new energy crisis for Europe, which is still reeling from the shocks of two years ago.
Escalating tensions in Ukraine have pushed gas prices up nearly 45 percent this year. While levels are still well below the 2022 record, they are high enough to deepen the cost-of-life crisis for households and intensify competitive pressure on strapped manufacturers.
Gas storage is a lifeline during the coldest periods, but inventories are dwindling sharply this year as colder temperatures boost demand for heat and wind droughts require more use for power generation.
More than two years after President Vladimir Putin weaponized energy, Europe is struggling to secure its energy system. The tight market reflects the challenge of weaning the continent completely off Russian fossil fuels. The situation is set to worsen with gas shipments that helped fill reserves in 2024 likely to be unavailable next year, adding pressure on prices.
“We still have problems with gas supplies,” RWE AG Chief Executive Officer Markus Kreiber said at a conference on Friday. “If we really want to be independent of Russian gas, we need more import capacity and we’ll probably see that again this winter because gas storage facilities are emptying pretty quickly as we have a cold start. is.”
Russia’s war on Ukraine escalates, with both sides launching missile strikes this week to gain leverage before Donald Trump returns to the White House. As a result of rising tensions, the US sanctioned Gazprombank, the last major financial institution exempt from fines and the agency that manages payments for Russian gas.
The sanctions are aimed at cutting the Kremlin’s income from energy exports, but they also risk cutting off natural gas that still reaches a handful of central European countries.
Although Europe has reduced its dependence on Russia, losing one of the last remaining routes for pipeline gas will put further pressure on the gas market and push up global prices, according to analysts at Energy Aspects.
Europe was already bracing for a possible end to the flow of Russian gas through Ukraine when the transit deal expires at the end of the year. The restrictions mean gas flows could stop before Hungary warns its energy security is at risk.
Read more: Europe is ready to supply the last Russian gas to Ukraine.
Prices are reflecting the potential loss of remaining cheap Russian flows, delays in additional supplies of liquefied natural gas from the U.S. and severe cold weather.
In another unusual sign of pressure on the system, prices for summer, when gas is considered cheap enough to store, are more expensive than the following winter. This suggests that the longer energy costs remain high, and the lower storage levels are this winter, the harder it will be to replenish reservoirs.
At the height of the energy crisis in 2022, Germany ordered immediate purchases of gas for storage from the global market at record prices. To try to recoup some of the extra costs, Berlin introduced a gas storage levy, paid by traders or utilities for delivery through Germany. It has been heavily criticized as it increases the cost of LNG procurement for landlocked countries such as Austria, Slovakia and the Czech Republic.
“It’s starting to resemble a 2022 scenario in which the EU bought gas at any price,” said Arne Lohmann Rasmussen, chief analyst at Global Risk Management in Copenhagen. “Next year, it could potentially be during a year of strong Asian demand.”
International Energy Agency Executive Director Fateh Birol is sounding the alarm. He warned that if Russian gas flows through Ukraine stop on Jan. 1 when a deal between Moscow and Kiev expires, Europe needs enough inventory for the end of this winter. .
In Germany, where many factories have had to halt or throttle production due to high energy costs, the rapid drawdown of inventories predicts pressure on Europe’s largest economy to persist for a third year in a row. can stay
Ole Hansen, head of commodity strategy at Saxo Bank AS, said: “Once again, energy-intensive economies, led by Germany, will suffer the most, hurting an economy that is already dominated by cars, chemicals and machinery. facing difficulties in the fields of
Germany has been stagnating since the energy crisis and rising inflation could fuel voter disillusionment ahead of snap elections in February.
In the winter of 2022, Europe avoided a shortage thanks in part to mild winters. The risks of energy rationing are low this year. Higher prices compared to Asia mean LNG shipments are coming. But elsewhere, colder weather could create more competition for supply and push up prices further, creating problems for the region.
“There is an increased risk that Europe’s luck, in terms of mild weather, may come to an end this coming winter,” Saxo Bank’s Hansen said. “In other words we are forced to rely on LNG imports and need to remain competitive with Asia.”
