Warm winter helps Europe overcome the worst of Russia’s energy squeeze
European Picture: Crude And From Union Is Coal No Longer And Have Curtailed Russia Andrey Rudakov/bloomberg Gas Significantly The Deliveries Importing Oil Been
Vladimir Putin’s plans to squeeze Europe by weaponising energy look to be fizzling out, at least for now.
Mild weather, a wider array of suppliers, and efforts to reduce demand are helping, with gas reserves still nearly full and prices tumbling to pre-war levels.
After the sharp turnaround over the past month, Europe is likely already through the worst of the crisis.
The combination of conditions, including China’s Covid woes blunting competition for LNG cargoes, would take the edge off inflation, stabilise Europe’s economic outlook, and leave the Kremlin with less leverage over Ukraine’s allies, if they persist.
While a cold snap or delivery disruptions could still throw energy markets into disarray, optimism is growing that Europe can now make it through this winter and next.
“The danger of a complete economic meltdown, a core meltdown of European industry, has, as far as we can see, been averted,” German economy minister Robert Habeck said during a trip to Norway, which has taken Russia’s place as the country’s biggest gas supplier.
The crisis, triggered by Russia’s invasion of Ukraine last February, has already cost Europe close to $1tn (€937bn) from surging energy prices.
Governments have responded with more than $700bn (€656bn) in aid to help companies and consumers absorb the blow. They also scrambled to unwind their reliance on Russian energy, especially natural gas.
The European Union is no longer importing coal and crude oil from Russia and gas deliveries have been significantly curtailed. The bloc has filled some of the gap by increasing supplies from Norway and shipments of liquefied natural gas from Qatar, the US and other producers.
In Germany, storage facilities are about 91% full, compared with 54% a year ago, when Russia had already been emptying facilities it controlled.
Chancellor Olaf Scholz’s government has since nationalised Gazprom PJSC’s local units and has spent billions of euros filling reserves.
Energy-saving measures from industry and households as well as the warmest January temperatures in decades have helped preserve that cushion.
“We are very optimistic, which we weren’t really back in the fall,” said Klaus Mueller, head of Germany’s network regulator.
Benchmark gas prices have fallen to a fifth of records set in August, and despite concerns that cheaper rates could stoke demand, usage is still declining, a silver lining of the weak economy. European consumption is expected to be some 16% below five-year average levels throughout 2023, Morgan Stanley said in a report.
Favourable conditions and the expansion of renewable capacity is also helping. Higher wind and solar generation will help slash gas-fired power generation in 10 of Europe’s largest power markets by 39% this year, according to S&P Global.
The dynamic has shifted to such an extent that there’s now too much LNG arriving, according to Morgan Stanley. Deliveries set a fresh record in December, and the trend is likely to continue.
“The fact that Europe managed to fill up its storage sites has really created a buffer for prices for the upcoming winter,” said Giacomo Masato, lead analyst and senior meteorologist at Italy-based energy company Illumia SpA.
Despite the positive developments, prices are still higher than historical averages and risks remain. Russian pipeline gas imports this year will be just a fifth of usual levels, about 27 billion cubic meters, and the Kremlin could cut them completely.
Meanwhile, the climate crisis has contributed to a lack of demand for heating so far this winter and increasingly volatile weather patterns may still trigger blasts of cold, such as the recent arctic weather that swept across the US.
To ensure smooth stockpiling in the summer, a lot of factors have to align, including solid electricity supply from wind, nuclear, and hydro generators, stable LNG flows and continued energy savings, said Anne-Sophie Corbeau, a researcher at Columbia University’s Center on Global Energy Policy.