Europe Braces for Potential Winter Gas Supply Crisis

A hard winter combined with a natural gas supply shortage could mean some difficult choices for Europe over the coming months.

The looming cold-weather crisis may cost European governments and industries a staggering amount of money to subsidize energy availability and household utility payments, while also derailing climate action commitments.

And even then, there’s no guarantee that Europe will get to next spring without grim consequences.

European countries have successfully built up their gas storage levels, hitting a November goal of 80 percent of full capacity by the end of September. Analysts generally agree that gas storage should get Europe through three months of normal winter demand.

But if demand is higher than normal, winter is much colder or longer than average, gas supply drops even further from current levels or countries don’t enforce consumption limits, a dangerous and economy-crippling energy shortage could develop after January.

At the Mercy of Russia

The European Union has proposed a plan that would redistribute $142 billion in profits from power and hydrocarbon companies to energy consumers and also cut peak-hour electricity demand by 5 percent, with an overall target of reducing total demand by 10 percent through next March.

Curtailment of Russian gas pipeline shipments to Europe led to much – but not all – of the energy squeeze, in a response to sanctions following the invasion of Ukraine.

“Western Europe has allowed itself to become highly dependent on Russia for energy supply, and not just natural gas, but also oil and coal,” said Anna Mikulska.

Years of over-reliance on Russian energy exports have left Europe with the threat of an energy crisis and the conundrum of trying to balance energy security, adequate energy supply and climate action commitments.

“The issue is, and we’ve seen it, Russia is unlikely to just sit there and wait. Russia has used its energy to inflict serious economic pain,” she observed.

Mikulska is a nonresident fellow in energy studies at Rice University’s Baker Institute for Public Policy and a lecturer at the University of Pennsylvania, where she teaches graduate-level seminars on energy policy and the geopolitics of energy.

According to her CV, Mikulska speaks Polish, Russian, English, German and Farsi. She holds a law degree from Adam Mickiewicz University in Poznan, Poland, and a doctorate in political science from the University of Houston.

“Gas needs expensive, significant infrastructure that takes a long time to build. Europe has not been ready – it has not built enough of gas infrastructure that could bring gas supplies from sources other than Russia,” Mikulska said.

Image Caption

Construction of berth facilities for Nord Stream 2 in the western Russian city of Vyborg

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A hard winter combined with a natural gas supply shortage could mean some difficult choices for Europe over the coming months.

The looming cold-weather crisis may cost European governments and industries a staggering amount of money to subsidize energy availability and household utility payments, while also derailing climate action commitments.

And even then, there’s no guarantee that Europe will get to next spring without grim consequences.

European countries have successfully built up their gas storage levels, hitting a November goal of 80 percent of full capacity by the end of September. Analysts generally agree that gas storage should get Europe through three months of normal winter demand.

But if demand is higher than normal, winter is much colder or longer than average, gas supply drops even further from current levels or countries don’t enforce consumption limits, a dangerous and economy-crippling energy shortage could develop after January.

At the Mercy of Russia

The European Union has proposed a plan that would redistribute $142 billion in profits from power and hydrocarbon companies to energy consumers and also cut peak-hour electricity demand by 5 percent, with an overall target of reducing total demand by 10 percent through next March.

Curtailment of Russian gas pipeline shipments to Europe led to much – but not all – of the energy squeeze, in a response to sanctions following the invasion of Ukraine.

“Western Europe has allowed itself to become highly dependent on Russia for energy supply, and not just natural gas, but also oil and coal,” said Anna Mikulska.

Years of over-reliance on Russian energy exports have left Europe with the threat of an energy crisis and the conundrum of trying to balance energy security, adequate energy supply and climate action commitments.

“The issue is, and we’ve seen it, Russia is unlikely to just sit there and wait. Russia has used its energy to inflict serious economic pain,” she observed.

Mikulska is a nonresident fellow in energy studies at Rice University’s Baker Institute for Public Policy and a lecturer at the University of Pennsylvania, where she teaches graduate-level seminars on energy policy and the geopolitics of energy.

According to her CV, Mikulska speaks Polish, Russian, English, German and Farsi. She holds a law degree from Adam Mickiewicz University in Poznan, Poland, and a doctorate in political science from the University of Houston.

“Gas needs expensive, significant infrastructure that takes a long time to build. Europe has not been ready – it has not built enough of gas infrastructure that could bring gas supplies from sources other than Russia,” Mikulska said.

“Eastern Europe has been telling Western Europe for years, ‘Be careful making yourself so dependent on Russian supply.’ Germany and others didn’t want to listen. They wanted to rely on their own understanding of how business with Russia works,” she added.

Europe involved Russia in two-way trade to strengthen economic ties and built its place as a major and important consumer for Russian energy. Russia’s giant gas company Gazprom became co-owner of midstream companies in Germany, including storage facilities.

When it came to the thought of Russia weaponizing its energy exports, “Germans said, ‘There’s no way. We’re a big market and we’ve made Russia dependent on us,’” Mikulska observed.

Before the export curtailments, Russia supplied around 40 percent of Europe’s natural gas and accounted for about 25 percent of the EU’s oil imports, according to Eurostat. Also, EU countries imported nearly 52 million tons of thermal coal from Russia last year.

Relations Turn Chilly

Political tensions between Europe and Russia began to escalate in 2014 when Russia announced its annexation of Crimea. A series of sanctions against Russian businesses and individuals by EU members and several other countries followed.

When Russian troops entered eastern and northern Ukraine in February of this year, Europe began to issue additional sanctions packages, notably including a full asset freeze imposed on three leading Russian banks. It later announced a partial embargo on Russian oil and a plan to minimize Europe’s dependence on Russian energy imports.

The subsequent effect on energy supply “is different for different commodities. Coal is somewhat easier to replace (than gas or oil), but not totally. Poland is currently experiencing shortages of coal,” Mikulska said.

Russia responded by interrupting or otherwise reducing its energy exports to Europe. In September, Gazprom completely halted its shipments through the Nord Stream 1 pipeline, which carries gas from northwest Russia to receiving terminals in Germany. It blamed equipment problems and said sanctions prevented its contractor from initiating repairs.

“I am certain this is not a real issue. It is typical Russian behavior. The announcement happened right when G7 countries announced their agreement to cap prices on Russian oil and around the time when Europe announced that they are ahead in terms of filling their gas storage,” Mikulska said.

Russian President Vladimir Putin suggested the situation could be resolved by Germany certifying the Nord Stream 2 pipeline, a gas line nearly parallel to Nord Stream 1 that was completed last year. Germany has ruled that the second pipeline does not meet security-of-supply requirements.

A quick 2022 timeline:

  • Feb. 21: Russia recognizes the independence of the eastern Ukrainian Donetsk and Luhansk areas.
  • Feb. 22: German Chancellor Olaf Scholz suspends certification of Nord Stream 2.
  • Feb. 24: Russian troops invade Ukraine.

“Nord Stream 2 did not meet the European law that required the unbundling of ownership of the resource and ownership of the pipeline,” Mikulska said, because Gazprom would provide the natural gas for shipment and a Gazprom subsidiary would own and operate the line.

A suggestion that Nord Stream 2 could initially ship gas supplied by Russian firm Rosneft, as a work-around to the unbundling requirement, met with little enthusiasm – especially from Gazprom.

Gazprom has an official monopoly for gas shipments via pipeline to Europe from Russia and “Rosneft has been trying to break that monopoly for a very long time,” Mikulska said.

The line’s owner, Nord Stream 2 AG, has started legal proceedings in the EU’s Court of Justice to annul the decision on the pipeline and has also initiated arbitration against the EU under the international Energy Charter Treaty.

This is hardly the first time energy supply has been used for geopolitical leverage. A famous example is the Arab Oil Embargo of 1973-74, when the Organization of Arab Petroleum Exporting Countries embargoed oil shipments to nations that had supported Israel during the Yom Kippur War.

Ironically, that embargo helped persuade Europe to turn to Russia for energy supply, Mikulsa noted.

“They thought it might be geopolitically unwise to rely on this Middle East source for oil,” she said.

Putin remarked in September that Europe’s energy problems started long before the Nord Stream 1 supply interruption, and he wasn’t wrong. Output from the Netherlands’ Groningen gas field, the largest in Europe and a key supply resource, has been slashed in recent years because of earthquake activity tied to subsidence.

Denmark, once the third largest oil and gas producer in Europe, cut back its energy operations with the aim of becoming climate neutral. Its largest gas field, Tyra, was shut down for redevelopment related to seabed subsidence and isn’t expected to go back online until 2023.

Environmental activists have campaigned against European nuclear power facilities for years. Following the 2011 Fukushima nuclear disaster in Japan, Germany turned away from nuclear energy and set dates for closing its plants. More than half of France’s extensive fleet of nuclear plans have seen closures for repair or maintenance.

Drought conditions in much of Europe have reduced hydroelectric output and also make it more difficult to get water for nuclear plant operation. Intermittently poor conditions for generating wind power have recently lowered wind-related electricity output in Europe.

Balancing Climate and Cold

Mikulska identified two main responses by Europe to the Russian energy-supply reductions.

“One, efficiency will be increased where possible with (European) countries using as little gas as possible. Second, Russian gas substitutes will be sought after,” she said.

Those substitutes include more nuclear power output, additional LNG capacity and increased use of coal, throwing the EU off track on its climate-action commitments. European countries also have vowed to develop additional wind, solar and hydrogen resources as quickly as possible.

“We will see more nuclear power coming on in Europe. Belgium has moved its phase-out of nuclear power by 10 years. France has had some technical problems, but they are fixing that,” Mikulska said.

Germany has announced plans to keep two of its nuclear power plants in the southern part of the country on backup status. The plants, Isar 2 and Neckarwestheim, had been scheduled for closure this year and will be available only if the country has no other options, the government said. But in another twist, Russia supplies Germany’s fuel for nuclear power.

Currently, “there is not much (nuclear fuel) in the market, and the next possible delivery might not be immediate,” Mikulska noted.

A new Dutch LNG import terminal at Eemshaven is scheduled to reach full capacity by early December. Also, two German LNG floating storage and regasification units in Wilhelmshaven and Brunsbuettel are projected for operational start this winter.

But exceptionally cold winter weather in Asia would limit LNG supply for Europe and increase LNG prices in both areas, as Europe and Asia increasingly compete for deliveries.

“If the winter is harsh in Europe or in Asia, or both, this will tighten the LNG market even more. Storage levels will naturally decrease and, if the temperatures are low enough for a long enough period, Gazprom may be hoping for new policies” and could try to break Europe’s unity on Russian energy bans, Mikulska noted.

According to commodity analysts, Europe’s imports of thermal coal could exceed 100 million metric tons this year and climb even higher next year, as countries reactivate shuttered coal power plants or delay coal plant closings.

“Europe has been using record amounts of coal, both lignite and hard coal. It’s very likely coal will be used much longer and more extensively than Europe expected,” Mikulska said.

EU countries are asking themselves, “Do we let our population freeze over the winter, or even risk it, or do we burn coal?,” she observed.

Years of over-reliance on Russian energy exports have left Europe with the threat of an energy crisis and the conundrum of trying to balance energy security, adequate energy supply and climate action commitments.

“It’s going to be a tough lesson,” Mikulska said.

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