Europe faces “unprecedented risks” to its natural gas supplies this winter after Russia cut off most pipeline shipments and could wind up competing with Asia for already scarce and expensive liquid gas that comes by ship, the International Energy Agency (IEA) said.
The Paris-based agency said in its quarterly gas report, released Monday, that global gas markets are expected to remain tight next year as Russian pipeline gas supplies dwindle and gas demand falls in Europe in response to energy-saving measures and high prices.
Natural gas markets worldwide have been tightening since 2021 and global gas consumption is expected to decline by 0.8% this year as a result of a record 10% contraction in Europe and flat demand in the Asia Pacific region, the IEA said.
Meanwhile, global gas consumption is forecast to inch up by just 0.4% next year.
In Europe, gas consumption has fallen by 10% in the first eight months of this year compared with the same period in 2021, driven by a 15% drop in the industrial sector as businesses curtailed production due to soaring prices.
The IEA said 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.
The EU on Friday agreed to mandate a reduction in electricity consumption by at least 5% during peak price hours.
Just a trickle of Russian gas is still arriving in pipelines through Ukraine to Slovakia and across the Black Sea through Türkiye to Bulgaria. Two other routes, under the Baltic Sea to Germany and through Belarus and Poland, have shut down.
Another hazard in the study was a late winter cold snap, which would be particularly challenging because underground gas reserves flow more slowly at the end of the season due to less gas and lower pressure in the storage caverns.
The EU has already filled storage to 88%, ahead of its goal of 80% before winter. The IEA assumed 90% would be needed in its Russian cutoff scenario.
Businesses in Europe have already cut back natural gas use, sometimes simply by abandoning energy-intensive activities such as making steel and fertilizer, while smaller businesses like bakeries are feeling a severe crimp in their costs.
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.
European governments and utilities have made up much of the Russian shortfall by purchasing expensive supplies of liquefied natural gas (LNG) that comes by ship from countries such as the U.S. and Qatar and by obtaining increased pipeline supply from Norway and Azerbaijan.
The goal is to prevent storage levels from falling so far that governments must ration gas to businesses. Gas storage must remain above 33% for a secure winter, according to the IEA, while levels below that risk shortages if there’s a late cold snap.
Lower levels also would make it harder for Europe to refill storage next summer, while higher reserves from conservation would help lower extremely high prices.
The IEA forecasts that Europe’s LNG imports will increase by over 60 billion cubic meters (bcm) this year, or more than double the amount of global LNG export capacity additions.
This means Asia’s LNG imports could stay at lower levels than last year for the rest of 2022, due to high gas prices in Europe, drawing in more cargoes.
However, China’s LNG imports could rise next year under a series of new contracts concluded since the start of 2021, while a colder-than-average winter would also result in additional demand from northeast Asia, further adding to market tightness.
The IEA said that if Russian supply to Europe completely stops from Nov. 1, EU gas storage would be less than 20% full in February if the LNG supply remains robust. But if the LNG supply dwindles to low levels it could be 5% full by February.
European leaders say the cutback in Russian gas is energy blackmail aimed at pressuring governments over their support for Ukraine and sanctions against Moscow.
Since Russia halted flows this month through the Nord Stream 1 pipeline running under the Baltic Sea to Germany, it and the parallel Nord Stream 2 – built but never operated after Germany refused to certify it – were damaged in underwater explosions that European governments say are sabotage.
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.
