Europe must pay to import liquefied natural gas, pray for a mild winter and reduce energy demand, as any infrastructure sabotage or even deeper Russian supply cuts would make power rationing or blackouts all but inevitable.
Even if Europe manages to stay warm and keep the lights on this winter, it will have a far greater challenge to refill depleted storage next year than it will to meet the European Union’s target of increasing stocks to 80% of capacity for November of this year.
It has surpassed that target and storage, currently around 90%, is a buffer, but the disruption of gas via the Nord Stream network from Russia to Germany leaves a gap despite rising supplies from elsewhere.
Russia progressively reduced gas flows through the Nord Stream and also through other routes after Western sanctions in response to the Ukraine war that began in February. Gas through the Nord Stream stopped completely in September.
Analysts put the gas deficit at nearly 15% of average European winter demand, meaning the continent has to cut consumption to get through the peak heating season.
“The situation will remain very fragile,” said Cuneyt Kazokoglu, director of energy economics at FGE.
“Domestic gas consumption in Germany jumped in late September to the highest level since March due to a cold snap, with demand about 14% higher than the four-year average of 2018-2022. This poses a threat,” she added.
Germany, Europe’s largest economy and one of the continent’s largest importers of Russian gas, is most exposed to supply disruption and has been especially active in developing plans to protect its industries and consumers.
Any hope that the Nord Stream network would resume shipments to Germany was dashed last month by suspected sabotage.
European nations have said they are working to increase the safety of critical infrastructure after the explosions damaged Nord Stream 1 and also Nord Stream 2, which never operated but was filled with gas when ready.
The Russian blackouts could get even worse if Moscow makes good on its threat to sanction the Ukrainian energy company Naftogaz, shutting down one of the last working Russian gas routes to Europe.
Europe has been increasing its imports of liquefied natural gas (LNG) and expanding the necessary infrastructure, but it has to compete in the global market where competition could become fiercer if the weather phenomenon known as La Niña takes hold and increases Asian demand.
That would drive prices higher. As Europe managed to build up stocks, prices fell from peaks around the time Russia invaded Ukraine, but the wholesale Dutch gas price, the European benchmark, is still around 80% higher than at this time last year.
“Additional LNG and demand destruction has helped so far this year,” said Wayne Bryan, head of European gas research at Refinitiv, but added: “Europe needs more of the same medicine.”
Even then, it is unlikely to make up for lost Russian gas.
Refinitiv estimates that northwestern Europe, including Germany, could import 18 billion cubic meters (bcm) more of LNG this winter, taking imports to 52 bcm this year, up 5.5% from last year.
Pipeline gas supplies have also increased from Azerbaijan, North Africa and Norway, but remain well below what the former leading gas exporter used to provide.
Together, the Nord Stream pipelines have a combined capacity of 110 bcm a year and would meet more than 30% of total European gas demand if operated at full capacity, Bank of America (NYSE:BAC) said.
For now, Russia is delivering 86 million cubic meters (mm3) per day to northwestern Europe via Poland and Ukraine, compared to an average of 360 million cubic meters per day last year, down 76%. , Bernstein analysts said.
Analyst estimates vary. If supply continues at current levels, Europe faces a shortfall of 155mm3/day, Bernstein’s figures show, based on average daily demand in northwestern Europe from September to March 2017-2021 of 930mm3.
EU countries have agreed to cut demand by up to 15% or a total of 50 bcm this winter.
If they succeed, storage levels should end the winter around 55 bcm. Recharging them in time for next winter will be difficult due to the lack of Russian supplies that Europe was still receiving earlier this year.
One risk is that as energy supplies decline, energy demand may not be reduced enough.
European demand for industrial gas has fallen as high gas prices have prompted factories in energy-intensive sectors such as aluminium, steel and ammonia to shut down production.
But Germany’s Federal Network Agency, which would be in charge of gas rationing in the event of a supply emergency, said household consumption is too high to be sustainable.
Another problem is that aging nuclear plants and difficulties cooling reactors during a summer drought have reduced French atomic power output with collateral effects.
Refinitiv estimates that the resulting gas-for-power demand among utilities could be 30% higher this year than last.
Britain, which can import power from Europe, has also warned of power cuts this winter due to shortages in Europe.
A more comfortable power supply situation could be many winters away.
Francisco Blanch, an analyst at Bank of America, estimated that the normalization of gas prices in Europe could take between five and ten years.
“Europe will have to keep paying for gasoline and praying for warmer weather,” he said.