The International Energy Agency has said that Europe faces “unprecedented risks” to its natural gas supplies this winter after Russia cut off most pipeline shipments.
Even worse, the physical shortage of gas in market means that Europe could wind up competing with Asia for already scarce and expensive liquid gas that comes by ship, thus pushing global prices up even higher.
Prior to the Russian invasion of Ukraine, Russia supplied around 40% of all the gas consumed in the EU in 2021. Germany in particular is especially reliant on this supply of cheap gas.
Gas only generates about 15% of the country’s electricity, but many rely on it for heating and it is vital to heavy industries such as petrochemicals that use a lot of energy.
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.
“Europe’s energy crisis is only now really starting to hit home, because increases in wholesale prices are still feeding through into firms’ and households’ bills,” said Simone Tagliapietra, an energy specialist at Belgian think-tank Bruegel, as quoted by the Financial Times this week.
“The cost for the economy will get way bigger,” she warned.
On Friday, the EU agreed to mandate a reduction in electricity consumption by at least 5% during peak price hours. The EU’s Save Gas for a Safe Winter program aims to reduce overall gas demand by 15% across the bloc this winter by asking people to turn down thermostats in homes and offices, for example. Further measures are expected in the coming days.
But it may be too little, too late -- costly LNG imports make for more expensive gas-fired electricity generation and less competitive products of processes involving natural gas.
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.
With energy inflation still running wild, the question now is whether the EU has done enough to survive the winter without experiencing cripling economic pain -- a prospect that would bring into question Europe's willingness to continue supporting Ukraine in its war with Russia.
Protests have already been reported in the continent: Tens of thousand of people turned out to protest against spiralling living costs in Czechia, which they have blamed on their government's foreign policy.
Meanwhile, global 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.
“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.
(If you have a story in and around Mumbai, you have our ears, be a citizen journalist and send us your story here. )