Europe is everywhere looking for energy to sustain its economy as Russia limits its supply of natural gas. Coal-fired power plants are making a comeback. Billions of dollars will be spent on the terminal to bring in liquefied natural gas, much of it coming from shale oil fields in Texas. Officials and heads of state are flying to Qatar, Azerbaijan, Norway and Algeria to finalize energy deals.
Across Europe, fears are growing that a Russian gas cutoff could force governments to ration fuel, force businesses to close factories, and put thousands of jobs at risk. increase.
So far, the search for fuel has been fairly successful. But with prices continuing to soar and the Russian threat showing no signs of abating, there is little room for error.
“There are huge and justifiable concerns this winter,” said Michael Stoppard, vice president of global gas strategy at research firm S&P Global.
Five months after Russia’s invasion of Ukraine, Europe faces an accelerating and increasingly irreversible challenge in how it secures the energy it needs to heat and cool its homes, run its businesses and generate electricity. We are in a period of transition. The long-term switch to more renewable energy sources has given way to a short-term scramble to survive the coming winter.
The amount of natural gas coming from Russia, once Europe’s largest fuel source, is less than a third of what it was a year ago. Russian energy giant Gazprom this week pushed European gas futures prices to record levels, curbing already sharply declining flows in a major pipeline from Russia to Germany.
Within a day of Gazprom’s announcement, the European Union called for a 15% reduction in gas usage across the bloc.
The move from Russian natural gas, almost unthinkable after decades of receiving Siberian gas delivered through thousands of miles of pipelines, sent shockwaves to factory floors. , forcing governments to look for alternative energy sources.
A multifaceted effort to find an alternative to Russian gas has nearly made up the shortfall. Despite Gazprom’s cuts, European natural gas supplies in the first half of 2022 are about the same as they were at the same time last year, said Jack Sharples, a fellow at the Oxford Energy Institute.
The standout achievement of this revival was liquefied natural gas, which was cooled into a condensed liquid form and transported by ship. LNG has essentially replaced gas piped from Russia as the primary fuel source in Europe.About half of the supply comes from the United States, and this year The world’s largest fuel exporter.
Toward the end of the year, European countries are asking energy companies to fill salt caves and other storage facilities with gas To provide a safety margin in case Russia closes the pipeline.
Europe’s gas storage now stands at about 67% of total capacity, more than 10% higher than a year ago. These levels provide reassurance that European countries could reach closer to the EU target of 80% full tanks by winter.
Coverage of the Russian-Ukrainian War
- Grain blockade: The landmark deal aims to lift Russia’s blockade on Ukrainian grain shipments and ease the global food crisis.
- ambitious counterattack: Ukraine has laid the groundwork for recapturing Kherson from Russia. However, this effort requires enormous resources and can come at a great cost.
- Economic Pandemonium: Few countries have been hit as hard as Ukraine as the prices of food, energy and commodities continue to rise around the world.
- Inside the siege: For 80 days, a relentless Russian attack met unwavering Ukrainian resistance at the Avtostal Ironworks. People who were there are like this.
But concerns are still mounting, and there are many reasons why Europe’s efforts may fall short as the cold snap approaches.
Russia is well aware of the European Union’s campaign to stockpile enough gas to avoid this winter’s cutoff and wants to thwart it by reducing pipeline flow. And all sorts of weather problems — unusually cold winters, North Sea storms Knocking out Norwegian gas production or delaying LNG tankers during the Atlantic hurricane season could leave Europe running out of energy.
“We are approaching the danger zone,” said Massimo Di Odoardo, vice president of gas at research institute Wood Mackenzie.
Reflecting these concerns, European gas futures prices have doubled in the past two months to about €200 per MWh on the Dutch TTF exchange, about 10 times the level of a year ago. rice field.
The astronomical cost of energy in Europe is putting various industries on the defensive, forcing changes that could help make the European Union’s voluntary gas saving target of 15% achievable . The International Energy Agency recently forecast that gas demand in the region will fall by 9% this year.
For example, ArcelorMittal’s ironworks in the German port of Hamburg has been using natural gas to extract iron and feed it into electric furnaces for many years. More recently, however, it has begun buying metal for its plants from sister factories in Canada, where it has access to cheaper energy. North American natural gas prices, while rising from historical levels, are about one-seventh of European prices.
“The cost of natural gas is too high to afford to operate in a normal way,” said Uwe Braun, CEO of ArcelorMittal Hamburg.
Few analysts or executives expect the situation to ease in the coming months. Instead, winter could prove to be a nail-biter, with energy-intensive industries such as metal smelters and fertilizer and glass manufacturers under pressure.
News of factory closures and production cuts is already trickling in. In Romania, the ALRO group recently shut down production at a large aluminum factory and laid off 500 people due to high energy costs and uncompetitiveness. He then announced
In some countries, including the UK and Germany, energy companies have not fully passed these costs on to their customers.
Henning Groustein, director of political risk firm Eurasia Group, said: “The biggest risk at the moment is a spike in domestic and industrial energy prices this winter that both the public and industry can do little to cope with.” said.
Liquefied natural gas shipments are the main alternative to gas piped from Russia for much of the continent, and remain a costly alternative. And his growing demand for LNG in Europe could be hurting other parts of the world that rely on fuel.
Europe has basically bid for liquefied gas in other markets, mainly in Asia, where China, Japan and South Korea are the main customers. Europe “is taking LNG from markets that are not ready to pay the prices that Europe may be ready to pay,” said Ben Vann, chief executive of LNG provider Shell. Baden told reporters on Thursday. “It’s a very uncomfortable position.”
Countries such as Germany and Romania have also taken other measures, including: Postponing the restoration or decommissioning of coal-fired power plants. The idea is to minimize the amount of gas used to generate electricity in power plants, saving it for necessities like heating homes and running factories. on thursday International Energy Agency expects global coal demand to reach nearly 9 billion tonnes this year, matching the 2013 peak.
Many uncertainties remain. Europe has about 20 terminals that receive liquefied natural gas, but Germany has none. Berlin is rushing to build up to four of these facilities, four of which he has set aside €2.5 billion ($2.55 billion) to rent LNG processing vessels.
Weather may be an important factor, not just in Europe.Long a major market for liquefied gas, Asia’s frigid winters will increase competition from Europe. What analysts say is that global supplies of LNG are limited
It’s also hard to tell where else the big increase in gas is coming from. “If the supply from Russia were completely lost, there would be very little room for more supply from other countries,” said Sharples of the Oxford Institute.
There are other wildcards. Until the gas crisis hit, the Dutch government planned to shrink the huge Groningen oil field in northern Holland, one of the few major sources of natural gas on mainland Europe. This is due to local outrage over earthquakes caused by gas mining.
Some observers are waking up what S&P Global’s Stoppard has called a “sleeping giant” that could return very large amounts of gas (perhaps 40% of Germany’s annual consumption) back to the grid. In particular, I question the government’s continued reluctance.
The Dutch government has decided to postpone the permanent closure of the gas well due to “uncertain geopolitical developments”, but the use of Groningen “puts people’s safety at risk”. It claims to consider only the “worst case scenario”.
This stance may be put to the test in the coming months.
Melissa Eddy contributed to the report.