The European Union has begun to prepare for the winter of 2023-2024, after a winter whose abnormally high temperatures decisively helped the old continent to avoid an energy collapse.
As gas inventory fill levels reached 61% in early May, well above 37% a year ago, the Commission’s spring forecast presents estimates of the expected development of gas supply in the Union next winter, depending on the range in which prices are expected to fluctuate.
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Focus on savings
Particular importance is attached to energy savings, the “27” having already agreed to extend until March 31, 2024 the objective of reducing gas demand by 15%. According to the Commission, Member States’ compliance with the regulation will help fill natural gas warehouses, keep prices low and ensure sufficient energy supplies.
If the observed fall in gas demand continues, the Commission’s reference scenario estimates that storage levels will reach 95 billion cubic meters by the end of October 2023, thus above the target of 90% of storage. At the end of March 2024, reserves are estimated at 43 billion cubic meters, constituting a good base for winter 2024-2025.
But if the bloc’s member states fail to meet their pledges to cut their gas consumption by 15%, the tanks could be nearly empty by the end of winter 2024.
As the Commission’s report points out, although the threat of an energy collapse of the bloc with an absolute lack of natural gas has diminished considerably, the evolution of prices remains extremely uncertain. Today, high storage levels and the diversification of supply sources have reduced the risk of a new wave of pressure on European gas markets, at August 2022 standards. The market estimates that until the end of winter 2022-2023, prices will remain fairly stable. above €50 per megawatt-hour, limited to one-sixth of the 2022 peak price – although more than twice as high as pre-crisis levels.
Any increase in demand, however, could rekindle the pressures. “This can be caused by a combination of e.g. a cold winter or a hot summer,” the Commission explains, warning that lower prices reduce incentives to save natural gas and use alternative fuels for At the same time, the increase in global demand for LNG, as well as problems with the production of electricity from nuclear and hydroelectric plants, could put pressure on prices. , any favorable weather conditions that would contribute, among other things, to an increase in renewable energy production, could push prices below current futures levels.
US LNG imports more than doubled
In any case, the importance of natural gas remains great for the bloc since, as the Commission report points out, despite the EU’s measures to wean itself off fossil fuels, natural gas “will continue to play a important role in the energy mix over the next decade and beyond”. This is also the reason why “security of supply and the affordability of natural gas remain a key priority for the EU”.
Following Russia’s invasion of Ukraine, the report says, the EU has embarked on a race to diversify its energy supply and resolve LNG delivery difficulties. “While total gas imports from Russia fell by 80 billion cubic meters, the EU intensified cooperation with other countries to boost gas imports. In particular, US LNG imports fell more more than doubled, to about 50 billion cubic meters in 2022. New floating LNG terminals have been commissioned in Finland, Germany and the Netherlands.In addition, a record number of more than 56 gigawatts of wind capacity and solar was installed in the EU in 2022, potentially reducing gas demand in the energy sector by 11 billion cubic meters.
The reduction in consumption in number
Reducing the demand for natural gas was fundamental to avoiding the energy crisis of last winter. From August 2022 to March 2023, households and businesses have reduced their gas consumption by 18% compared to the 2017-21 average, exceeding the Union’s target of a 15% reduction.
The extremely high prices of natural gas, which in August 2022 exceeded 300 euros per megawatt hour, were a decisive factor in restricting demand. Although gas demand is normally relatively inelastic and tends not to be affected by prices, the colossal increases this time around have helped reduce consumption.
“Industry (excluding power generation) contributed about half of the reduction in natural gas consumption, partly through production cuts,” the Commission says. “During the summer months, the overall decline in demand for natural gas came mainly from industry, with manufacturing companies being the first to reduce their consumption of natural gas. However, the reduction in gas consumption does not appear to have led to an overall reduction in production, as in 2022 total manufacturing output was at its highest level in the five-year period 2017-2022. Now, lower prices should lead to a recovery in business demand.
“The residential and commercial sectors are estimated to have contributed the remaining half of the drop in gas demand in the EU, largely due to warmer temperatures. Space heating represents, on average, around 63% of the final energy consumed by households in the EU. Reducing heating is therefore an effective way for households to reduce their energy consumption.
The “key” months of energy autonomy
“As the period between August and December 2022 recorded approximately 8.3% fewer warming degree-days compared to the 2017-21 average, the Commission estimates that of the overall reduction in natural gas demand, approximately one-sixth was caused by milder weather (i.e. gas demand was 5 billion cubic meters or 3.0-3.2% lower). contributed to the achievement of this result are October and November.
Mixed picture in power generation
In terms of electricity generation, while some Member States have moved away from natural gas for electricity generation (back to coal), other Member States have seen gas consumption in the electricity sector increase by significantly. “For example, in Spain, the production of electricity from natural gas has increased significantly due to a combination of factors, including the Iberian price cap. The cap limited the increase in the price of natural gas used by power plants and increased electricity exports to France, which had to compensate for the lower availability of nuclear energy and the drop in hydro production caused by the drought that hit Europe in the summer of 2019. 2022,” the Commission notes.
Finally, the Commission refers to the agreement on the imposition of a “dynamic” price cap, which was reached with characteristic delay and after many months of negotiations within the competent European institutions, at ministerial level as well as at the level of the bloc’s leaders, noting that “initiatives to reduce demand and secure supply have been supported by measures to improve the functioning and transparency of price formation on the EU gas market”.