Europe faces “unprecedented risks” to its natural gas supplies this winter after Russia cut off most pipeline shipments and could wind up competing with Asia for already scarce and expensive liquid gas that comes by ship, the International Energy Agency (IEA) said.
Media reports including an AP report said:
The Paris-based IEA said in its quarterly gas report released Monday that European Union countries would need to reduce use by 13% over the winter in case of a complete Russian cutoff amid the war in Ukraine. Much of that cutback would have to come from consumer behavior such as turning down thermostats by 1 degree and adjusting boiler temperatures as well as industrial and utility conservation, the group said.
The EU on Friday agreed to mandate a reduction in electricity consumption by at least 5% during peak price hours.
Still A Trickle Of Gas
Just a trickle of Russian gas is still arriving in pipelines through Ukraine to Slovakia and across the Black Sea through Turkey to Bulgaria. Two other routes, under the Baltic Sea to Germany and through Belarus and Poland, have shut down.
Another hazard in the study was a late winter cold snap, which would be particularly challenging because underground gas reserves flow more slowly at the end of the season due to less gas and lower pressure in the storage caverns. The EU has already filled storage to 88%, ahead of its goal of 80% before winter. The IEA assumed 90% would be needed in its Russian cutoff scenario.
Businesses in Europe have already cut back natural gas use, sometimes simply by abandoning energy-intensive activity such as making steel and fertilizer, while smaller businesses like bakeries are feeling a severe crimp in their costs.
High prices for gas, which is used for heating homes, generating electricity and a host of industrial processes are feeding through to record consumer inflation of 10% in the 19 EU member countries that use the euro and sapping so much consumer purchasing power that economists predict a recession at the end of this year and the beginning of next.
European governments and utilities have made up much of the Russian shortfall by purchasing expensive supplies of liquefied natural gas, or LNG, that comes by ship from countries such as the U.S. and Qatar and by obtaining increased pipeline supply from Norway and Azerbaijan.
The goal is to prevent storage levels from falling so far that governments must ration gas to businesses. Gas storage must remain above 33% for a secure winter, according to the IEA, while levels below that risk shortages if there is a late cold snap.
Lower levels also would make it harder for Europe to refill storage next summer, while higher reserves from conservation would help lower extremely high prices.
Demand for liquefied gas has driven up prices and tightened supply to the extent that poorer countries in Asia cannot afford it. Bangladesh is experiencing widespread power blackouts, while Pakistan faces rolling blackouts and has introduced reduced working hours for shops and factories to save electricity.
Additional Pressure On Buyers
“Interregional competition in LNG procurement may create further tension, as additional European needs would put more pressure on other buyers, especially in Asia, and conversely cold spells in Northeast Asia could limit Europe’s access to LNG,” the agency said.
The gas crisis in Europe has also deprived Asian countries of the limited number of floating regasification terminals, which were expected to play a major role in LNG imports in Southeast Asia. Europe has secured 12 of the vessels and plans another nine.
A Reuters report said:
Global gas markets are expected to remain tight next year as Russian pipeline gas supplies dwindle and gas demand falls in Europe, the IEA said on Monday.
Natural gas markets worldwide have been tightening since 2021 and global gas consumption is expected to decline by 0.8% this year as result of a record 10% contraction in Europe and flat demand in the Asia Pacific region, the IEA said in its quarterly gas market report.
Meanwhile, global gas consumption is forecast to inch up by just 0.4% next year.
In Europe, gas consumption has fallen by 10% in the first eight months of this year compared with the same period in 2021, driven by a 15% drop in the industrial sector as businesses curtailed production due to soaring prices.
If Moscow carries out a threat to sanction Ukrainian energy firm Naftogaz, one of the last functioning Russian gas supply routes to Europe could be shut, exacerbating the energy crisis just as the crucial winter heating season begins.
The IEA forecasts that Europe’s LNG imports will increase by over 60 billion cubic meters (bcm) this year, or more than double the amount of global LNG export capacity additions.
This means Asia’s LNG imports could stay at lower levels than last year for the rest of 2022, due to high gas prices in Europe, drawing in more cargoes.
However, China’s LNG imports could rise next year under a series of new contracts concluded since the start of 2021, while a colder-than-average winter would also result in additional demand from northeast Asia, further adding to market tightness.
The IEA said that if Russian supply to Europe completely stops from Nov. 1, EU gas storage would be less than 20% full in February if LNG supply remains robust. But if LNG supply dwindles to low levels it could be 5% full by February.
Ukraine Mulls Heating Homes With Garbage
Ukraine may switch from natural gas to garbage and biomass for heating as early as next year, the CEO of state energy major Naftogaz, Yury Vitrenko, said at a press briefing on Saturday. According to the official, the company could build three combined heating and power plants in Zhitomir that will be powered by municipal solid waste and wood chips.
Vitrenko explained that a cogeneration power and heating plant which will run on these types of fuel is currently under construction in Zhitomir. According to the official, it is more profitable for Naftogaz to launch projects such as this now than to buy gas.
Analysts say it is unlikely that the plans outlined by Vitrenko will be successful. Former Naftogaz spokesman Maksim Beliavsky recently warned that the large-scale conversion of Ukraine’s power system to biomass is unrealistic, as it would take $100 million in investments to produce just 1 million cubic meters of biomass energy per year. In 2021, Ukraine burned roughly 19.4 billion cubic meters of gas during the heating season.
Last month, Vitrenko warned that Ukraine may face a gas shortage in the upcoming winter, which could lead to power cuts in large parts of the country. He advised Ukrainians to stock up on blankets and warm clothes, noting that this year’s heating season will start later and end earlier, while winter temperatures in apartments will be set at 17-18C, four degrees below the standard temperature.
Ukraine Wants To Replace Russian Gas Supplies
An earlier report said:
Ukraine’s state energy major Naftogaz plans to boost natural gas production and switch domestically to alternative energy, thus accumulating enough fuel to supply the EU during next year’s heating season, the company’s CEO Yuriy Vitrenko told Reuters.
According to Vitrenko, Ukraine could produce enough gas to substitute Russian supplies if it attracts investment and technology from Western partners.
Meanwhile, according to Vitrenko, Naftogaz is also working on ways to convert gas-fired power plants to biomass materials.
According to the CEO, Ukraine has the potential “to produce about ten billion cubic meters of biomass-energy,” which, according to Reuters data, is the same amount of gas Ukraine imported before the start of Russia’s military operation in February.
However, some analysts point out that it is unlikely that the plans outlined by Vitrenko will bear fruit. Ukraine has been unsuccessful in increasing domestic production for years and the situation is unlikely to change, especially since about 75% of Ukrainian gas production facilities are said to be very close to the front lines.
Additionally, the country’s gas reserves are low. Last year, Ukraine burnt roughly 19.4 billion cubic meters of gas during the heating season. Earlier this year, the government obliged Naftogaz to accumulate at least 19 billion cubic meters of gas in storage facilities, but it has only managed to store about 13 billion cubic meters as of September 1, according to the country’s natural gas transmission system operator (GTS Ukraine). Ukraine has not been buying gas directly from Russia since 2015, importing reverse supplies of Russian gas from Europe instead. And, with Russian gas flows dwindling amid sanctions and technical troubles, analysts fear Ukraine will not be able to store much more.
Furthermore, analysts say a large-scale conversion of Ukraine’s power system to biomass power is unrealistic.
Even with Western investment, replacing Russian gas supplies to the EU, which totaled around 155 billion cubic meters last year, seems like an impossible task for Ukraine.
Scientists Warn Of Colder Winter In Europe
Another media report said:
European countries may be about to face a colder than usual winter, the head of the European Centre for Medium-Range Weather Forecasts (ECMWF) predicted on Sunday. This forecast comes as the continent is struggling with an energy crunch spurred by the sanctions the West has slapped on Russia over the Ukraine conflict.
Speaking to the Financial Times, ECMWF Director-General Florence Rabier said that early data suggest that in November and December Western Europe may face a period of high pressure. This, she noted, may bring in colder weather with less wind and rainfall, which may reduce the amount of power generated by renewable power sources.
“If we have this pattern then for the energy it is quite demanding because not only is it a bit colder but also you have less wind for wind power and less precipitation for hydro power,” Rabier told the outlet.
The ECMWF chief went on to say that while in the short term Europe may experience milder weather due to the recent hurricanes in the Atlantic, an atmospheric phenomenon called La Nina may bring in colder weather later on. This usually occurs due to periodic cooling of the Pacific Ocean, which triggers ripple effects on weather across the globe and can change wind and precipitation patterns.
Rabier noted that Europe just experienced one of its hottest summers in history. While this proved to be a bonanza for solar power, it also led to a decreased share of wind and hydro power in the EU’s energy mix.
Very Scary Situation
Various Western officials and public figures have warned of the desperate situation the EU may find itself in this winter. On Thursday, Microsoft founder Bill Gates claimed that in a few months the continent may face a “very scary situation” as many people could be unable to heat their homes.
In late September, EU Energy Commissioner Kadri Simson also predicted that this winter “will not be easy,” but adding that next winter “will be even more difficult.”
In recent months, Brussels has been reeling from an energy crisis fueled by skyrocketing gas prices due to the sanctions the West imposed on Russia over the Ukraine conflict. To alleviate the situation, the EU approved on Friday a package of emergency measures, including mandatory power savings, a cap on excess market revenues, and a levy to capture surplus corporate profits. Officials have also encouraged consumers to save energy by all available means.
Pakistan Faces Years of Fuel Shortages After Gas Tender Flop
A Bloomberg report said:
Pakistan’s acute energy shortage is at risk of lasting years after the government was unable to secure a long-term supply of liquefied natural gas.
Not one supplier responded to Pakistan LNG Ltd.’s tender to buy the power-plant fuel for between four to six years starting January, said traders with knowledge of the matter. The tender, which closed Monday, was seeking to procure one cargo of LNG each month.
The cash-strapped nation has been hit with widespread blackouts this year after several failed attempts to buy gas from the expensive spot market. It tried to get a long-term deal looking for more reasonable prices, but that hasn’t materialized.
There’s little LNG supply available until 2026 when massive new export projects start up, according to traders. Many spot cargoes are currently going to Europe, where buyers are willing to pay high prices in the rush to secure gas to replace dwindling Russian pipeline flows. That’s leaving developing nations facing energy shortages and economic uncertainty for years.
The latest blow comes at a difficult time for Pakistan, which is already struggling with high inflation and falling currency reserves. Some LNG suppliers are hesitant to sell fuel to the nation out of fear it may not be able to make future payments, according to traders.
Pakistan’s gas distributor Sui Northern Gas Pipelines Ltd. plans to supply 100,000 LPG cylinders to consumers to deal with a potential gas shortfall this winter, it said in a notice to the stock exchange. The company that caters to customers through pipelines in the northern half of the nation has been asked by the government to take steps to meet energy requirements.