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| Despite the absence of Russia, Europe could 'breathe easier' this winter and be in a much better position next year. (Source: BTI) |
The 27-member bloc has increased imports of liquefied natural gas (LNG) via pipeline from elsewhere, accelerated the approval and construction of LNG infrastructure, and urged citizens to cut energy consumption, all in the 20 months since Moscow launched a special military operation in Kiev.
The EU has passed at least one test with flying colors, with gas storage facilities being 99% full last week – well above the 90% target set by the EU executive.
Europe is not yet free from worries
In the long term, CNN said, Europe's gas demand is declining. The International Energy Agency (IEA) said it expected fuel demand in "mature markets," including Europe, North America and parts of Asia, to fall by 1% per year until the end of 2026, as these countries develop renewable energy.
Although a gas shortage in Europe this winter is unlikely, fuel prices remain a major concern.
Fuel prices in regional commodity markets have surged 28% over the past month. Even before that spike, fuel prices were still nearly double their historical average.
In October, the IEA said: "The increase in LNG supply is not enough to offset the sharp decline in Russian gas. Thus, Europe still faces the risk of price volatility, especially in the event of a very cold winter.
That volatility could mean more price increases in Europe and reflect the fact that the region now has fewer options to buy more gas if needed.”
The EU could need more fuel if the coming winter is colder than expected or if Russia - which still supplies gas via pipeline to some European countries, including Hungary and Austria - cuts off exports altogether, according to Moody's.
The group assessed that high gas prices are causing economic difficulties for some European countries - especially Germany, the region's largest economy.
Jack Sharples, senior research fellow at the Oxford Institute for Energy Studies, agreed: “Both increased demand and supply cuts have led to sharp increases in fuel prices in Europe.”
Gas prices could skyrocket
The European benchmark gas contract price rose from 36 euros ($38) to 47 euros ($50) per megawatt-hour since October 5, just before the Hamas-Israel conflict shook traders’ confidence.
According to experts, the conflict could spread and affect the Strait of Hormuz - an important waterway used for LNG exports.
About one-fifth of global LNG supplies pass through the canal on Iran's southern coast, S&P Global said.
The Hamas attack forced US energy giant Chevron to shut down the Tamar gas field off Israel's southern coast, which exports fuel to neighboring Jordan and Egypt.
Analysts say the reduction in Israeli gas flows to Cairo, which processes some of its gas into LNG for shipment abroad, could mean fewer or no Egyptian LNG exports this winter.
Finland said it had temporarily closed the pipeline connecting to Estonia due to a suspected leak.
Finnish authorities have opened a criminal investigation into whether the pipeline was deliberately damaged, raising concerns about the vulnerability of Europe's critical infrastructure, more than a year after a series of explosions rocked the Nord Stream 1 pipeline - once the lifeline of Russian gas to Finland.
Europe is “safe for the winter,” but its reliance on LNG for additional supplies means that “if something happens,” gas and fuel prices could spike, said Simone Tagliapietra, a senior fellow at Bruegel, a think tank that studies economic policy.
Agreeing, Bill Weatherburn, commodities economist at Capital Economics, stressed: "Europe's dependence on LNG has recently prompted several countries in the region, including France and Italy, to sign 27-year contracts with Qatar to import the commodity. This is something the bloc has avoided in the past."
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| Wilhelmshaven LNG terminal in Wilhelmshaven, Germany. (Source: Bloomberg) |
Waiting for the new LNG wave
Despite facing many difficulties, CNN believes that Europe can "breathe easier" this winter and be in a much better position next year.
Gas prices in Europe are down 86% from their all-time high in August 2022 of 339 euros ($357) per megawatt hour.
In the next few years, the IEA believes that a new wave of LNG could emerge on the global market.
The agency's World Energy Outlook forecasts that 250 billion cubic metres of new liquefaction capacity will come online by 2030, equivalent to nearly half of current global LNG supply.
Similarly, economist Weatherburn notes that from early 2024, a large amount of LNG supply will begin to flow into the global market. This will have a strong impact on European natural gas prices and Asian LNG prices.
“The next two years will see the emergence of several LNG export facilities in the US and the first phase of the expansion of a major offshore gas field in Qatar. These milestones will bring gas prices in Europe down to €30 ($32) per megawatt-hour by the end of next year,” he predicted.
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