As Moscow prepares for a possible invasion of Ukraine, optimism is growing that Europe will avoid a winter energy crisis that some believed would benefit Russian President Vladimir Putin.
Withdrawals from the region’s dangerously depleted subterranean gas-storage caverns have slowed due to a record supply of liquefied natural gas paired with warm and windy weather. A surge in gas shipments from Russia via Ukraine is also helpful.
According to Gas Infrastructure Europe, supplies are still scarce, with only 38% of Europe’s storage capacity being filled. However, the gap between this winter and past winters is closing, and prices are falling from record highs.
A lack of gas in Europe has limited the region’s capacity to respond to the deployment of over 100,000 troops on Ukraine’s border. Germany has been hesitant to argue for the most severe penalties. If Moscow reacted by limiting energy exports in the middle of winter, the country’s economy would be severely harmed.
However, natural-gas contracts in the Netherlands, the benchmark in northwest Europe, have fallen by 16 percent in the last week, a loss that has increased as additional Russian gas has entered Slovakia through Ukraine. They’re down 59% from the all-time high of €180.27, or $203.86, a megawatt-hour, recorded on Dec. 21, but they’re still four times higher than a year ago. Fears that storage sites might run out during the winter gripped European energy markets late last year. Windy and unusually warm weather aided the region, increasing renewable-energy output and minimising the need for gas-fired power plants. According to Natasha Fielding, a gas analyst at Argus Media, a cold snap that could send prices spiralling back up is unlikely to arrive in the medium term.
Also helping Europe is the fact that US exporters are sending cargo after cargo of liquefied natural gas, at rates that have recently surpassed those in Asia. According to commodities data provider ICIS, Europe imported a record 9.5 million metric tonnes of LNG last month, nearly three times the haul from January 2021.
Almost half of the LNG came from the United States. Thirty boats bringing gas from the United States are scheduled to arrive in February, according to Tom Marzec-Manser, head of gas analytics at ICIS. The data do not include Turkey, which is experiencing a gas shortage due to a pipeline failure bringing Iranian gas into the country.
Due to the influx of LNG, Europe was able to be more frugal in its use of the gas it had stockpiled in the run-up to winter. Instead of accumulating in coastal nations with gas import ports, the advantages are dispersed across the continent. This is due to the recent proliferation of pipeline links between national gas markets.
In recent days, Russia has also begun to supply additional gas to Europe. Last year, the government throttled delivery, helping to push prices to all-time highs. It accounts for around 43% of the European Union’s gas imports.
At the start of 2022, Russia continued to drip feed gas to Europe, but shipments surged up in February, lowering prices. According to early statistics from the Slovak pipeline operator, a total of 119 million cubic metres entered Slovakia on Tuesday and Wednesday at Veké Kapuany, near the Ukrainian border.
That’s a significant rise. On an average day in the latter week of January, 47.5 million cubic metres of water passed through the gate. Russian gas may be sent through Slovakia to the Czech Republic, Hungary, and Baumgarten, an Austrian gas hub with links to Germany, France, and Italy.
Last year, when Gazprom PJSC restricted supplies to Europe, EU lawmakers accused Moscow of weaponizing its energy market dominance, a charge disputed by both the firm and the Kremlin. The reduction in exports in January and subsequent increase can be explained by a more mundane explanation.
European consumers often pay a price connected to front-month gas contracts under their Gazprom agreements. As a result, when contract prices skyrocketed in December, utilities and other purchasers reduced their purchases. When front-month prices fell in early 2022, Gazprom’s clients returned to the market for February delivery.
Europe still has limited leeway, and an increase in hostilities with Russia remains a wild card. Officials in Europe and the United States are taking no risks, scrambling in recent weeks to secure energy supplies in case the dispute jeopardises supply from Gazprom.
For the for being, however, lowering prices will provide respite to aluminium, zinc, and fertiliser manufacturers who curtailed output in response to rising energy costs. Gas prices in the United Kingdom, the region’s other gas-trading powerhouse, have also dropped. Electricity costs in Germany and France, the EU’s two largest economies, are declining. Electricity prices are closely linked to the gas market in Europe.
Consumers in nations like the United Kingdom and France have yet to feel the full impact of last year’s wholesale price hike, and the latest drop will take much longer to filter through.