The threat of gas rations grows this winter

On April 27, for the first time in the history of gas deliveries to the Old Continent, Russia decided to unilaterally terminate a supply contract in response to Western sanctions and cut the floodgates for Poland and Bulgaria. A meaningful decision for Europe, which has fallen into the trap of dependence on its eastern neighbor. Three weeks later, the blackouts are multiplying in succession, with flows being cut off in Finland and sharp drops in Germany, Austria and Italy. Enough to put the European Union in a race against time to diversify its gas supply to spend the winter in peace.

And rightly so, Twenty-Seven is now trying to fill its storage tanks as much as possible in order to be able to draw gas from them during periods of sharply rising consumption, namely in cold weather. It is a strategic safety net and is currently overseen by Brussels, as the European manager recently ordered these to be filled up to 90% during the November heating season. Before revising this target to 80%, given the scale of the challenge for some Member States that have so far relied on Russian deliveries to supplement their reserves. Decryption in five questions.

Why would you store gas?

Whether it comes from the Vladimir Putin-led country or elsewhere, fossil gas remains essential for most European countries to heat their buildings, operate their industries and even generate their electricity. Thus, in 2021, the EU consumed at least 400 billion cubic meters (about 5,000 TWh), of which 90% was mainly imported from Norway and Russia. However, during the winter months, gas stocks in underground cavities accumulated by Member States meet about 25% of these needs, they were created during the summer months when demand is less strong, making it possible to take advantage of more affordable gases. Price:% p.

Above all, this system must ensure the continent’s security of supply by providing an uninterrupted flow of energy throughout the year, especially during peak periods of climatic (such as cold) but also geopolitical or social consumption peaks. In other words, these reserves are a central tool for regulating gas supply and demand, and are even more valuable in these times of energy crisis. France, for example, has 130 TWh of storage capacity, which represents less than a third of its annual gas consumption (about 460 TWh).

Where are we today?

Currently, storage tiers about 54% at European level ” indicates Gallery Phuc-Vinh Nguyen is a researcher at the Jacques Delors Institute Energy Center. According to data from Gas Infrastructure Europe, it still hides large differences, as, for example, it reaches around 98% in Portugal or Poland, compared to 23% in Sweden. And for good reason, The Poles largely anticipated the current crisis with Russia and over the course of ten years came up with a grand plan to diversify their supply with a new gas pipeline from Norway and a large number of imports of liquefied natural gas. Notes to Phuc-Vinh Nguyen.

Against this, ” Germany is pretty pure Adds the researcher. ” greedy He even put the European Commissioner for Competition, Margrethe Vestager, on trial recently. Admittedly, there, at the start of the war in Ukraine, the government decided to freeze the Nord Stream 2 mega gas pipeline project, which will supply Russian gas to the Old Continent from March, while bypassing Ukraine via the Baltic. But the country is largely dependent on its twin Nord Stream 1, which has been in operation since 2012, despite the slowdown in deliveries agreed upon by Putin. And rightly so, with the decision to phase out nuclear power, Germany remains the country with the largest consumption of fossil gas in Europe at around 1,000 TWh per year. First of all, Berlin has no rules in this area, unlike France, which has for several years now required suppliers to fill their subscribed storage capacity to a minimum of 85% on 1 November.

German Economy Minister Robert Habeck reminded that with 139 TWh in the underground reserve, that is, 58% of the total capacity, the storage level is still slightly higher than the average of recent years.

How does Europe replenish its stocks despite conflicts?

All countries are turning to alternative sources to increase the speed. In Germany, the government even announced a real contingency plan and announced a few days ago that the new measures will include increased use of coal-fired power plants despite their harmful effects on the climate, as well as an auction. The system will launch in the coming weeks to encourage the industry to consume less. It also provides a 15 billion euro ($15.8 billion) line of credit to the German gas market operator, through its state creditor KfW, to fill gas storage facilities faster.

First of all, Europeans are rushing everywhere with liquefied natural gas (LNG) transported by LNG tankers from around the world instead of pipeline. Thus, LNG supply from terminals to the European gas transmission system in May reached a record level for the month, with 10.8 billion m3, surpassing the previous record of 10.27 billion m3 in May 2020. The gas transmission system has reached approximately 52.45 billion m3 since the beginning of the year. By comparison, Gazprom exported 61 billion m3 of gas to countries outside the Commonwealth of Independent States (including China) during the same period. The result: LNG reserves in Member States are 13% higher than in 2021.

In order to achieve this success, the United States especially made 15 billion m3 available. Also, the UK’s Grain LNG terminal, the largest in Europe and the eighth largest in the world, saw record gas shipment levels in April as strong European demand boosted gas use, with LNG carriers arriving from eight new countries since January.

And Europe’s record LNG consumption will only increase. Following the Russian invasion, a number of new LNG import infrastructures were proposed across Europe, and several previously shelved projects were back on track.

Is there a risk of failure?

However, as the plant is expected to remain closed for three weeks, deliveries from the US are likely to slow after the explosion at Freeport LNG’s US terminal in Texas, one of the world’s largest. Rystad Energy wrote on a note a few days ago, especially since the outage could be longer as the extent of the damage has yet to be determined.

“LNG is very demand driven. However, he will return to China, which will be deported. Prices will rise, warehouses will fill more slowly, and it will be difficult to reach the 80% target. Therefore, we will definitely buy LNG in winter at an exorbitant price,” adds Phuc-Vinh Nguyen.

First of all, if Russia completely stops its deliveries through the Nord Stream 1 gas pipeline, ” Europe’s natural gas would run out next winter and rationing would be inevitable. No matter how hard it tries to diversify supply and replenish inventory, research and advisory group Wood Mackenzie recently warned.

If this were the case, States would face a demand breakdown next winter, the effects of which could be manifold. So in Germany the government no longer hides the threat of rationing for users and businesses and brought up the idea a few days ago ” legal cost-saving measures ” If “ storage quantities did not increase. The recently announced contingency plan would then enter a second phase that would allow utilities to pass high gas prices to customers to curb demand.

It’s a risk that worries the manufacturing sector, which is already grappling with inflation. ” There are many industrial processes that cannot run without gas. ‘, alarmed Siegfried Russwurm, head of the industrial lobby BDI, on TV Sunday evening. consecutive results “.

Are other countries likely to suffer?

Moreover, this LNG race policy is wreaking havoc thousands of miles away as Pakistan finds itself grappling with a gas shortage. Indeed, parts of the country that are highly dependent on LNG to run their economy are experiencing planned power outages lasting more than 12 hours, throwing residents into darkness.

And rightly so, the boom in demand is driving up the price of available volumes, including in Asia, where LNG spot rates (i.e. market-created by exchanges on D-Day for the next day) are included in Asia. more than usual for this time of year. Even pre-existing contracts were broken, with Eni and Gunvor Group canceling more than a dozen LNG shipments to Pakistan from October 2021 to June 2022.

Thus, for example, a ship chartered by the BP company on April 1, feeding Asia from Texas, changed course after two weeks at sea, according to data from the agency. Bloomberg. A sudden U-turn took place in the middle of the Pacific Ocean that required paying a $1 million toll…but most of all, it allowed the LNG carrier to take advantage of high premiums to sell valuable LNG cargo far from its original destination. Europe.

This raises moral questions in the face of countries that have been asked to step out of coal quickly but do not offer reliable alternatives to make their transition. It’s a paradox in which Europeans lock themselves up. Finishing Phuc-Vinh Nguyen. In energy matters, as elsewhere, the cause of the strongest is always the best.

Liquefied natural gas (LNG): why is a global supply crisis looming?