Europe faces ‘unprecedented risk’ of gas shortage, energy agency says

Europe faces “unprecedented risks” to its natural gas supplies this winter after Russia cut off most pipeline shipments, the International Energy Agency (IEA) has said.

The Paris-based body said Europe could end up competing with Asia for already scarce and expensive liquid gas that is transported by ship.

The IEA said in its quarterly gas report that European Union countries would need to reduce use by 13% over the winter in case of a complete Russian cut-off amid the war in Ukraine.

Much of that cutback would have to come from consumer behaviour such as turning down thermostats by one degree and adjusting boiler temperatures as well as industrial and utility conservation, the group said.

On Friday, the EU agreed to mandate a reduction in electricity consumption by at least 5% during peak price hours.

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 cut-off scenario.

Businesses in Europe have already cut back natural gas use, sometimes simply by abandoning energy-intensive activity such as making steel and fertiliser, while smaller businesses like bakeries are experiencing a severe impact 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, as well as 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 (LNG) that comes by ship from countries such as the US 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.

European leaders say the cutback in Russian gas is energy blackmail aimed at pressuring governments over their support for Ukraine and sanctions against Moscow.

Since Russia halted flows this month through the Nord Stream 1 pipeline running under the Baltic Sea to Germany, it and the parallel Nord Stream 2 – built but never operated after Germany refused to certify it – were damaged in underwater explosions that European governments claim were a result of sabotage.

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.

“Inter-regional 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 north-east 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 south-east Asia.

Europe has secured 12 of the vessels, with plans for another nine.