Natural gas: Europe at a crossroads

Energodigest | 3 February 2023
Though in December growth in energy prices in Europe decelerated to 25.5% YoY,[1] the lowest rate in 2022, local consumers remain under immense pressure and are scrambling for ways to cut their energy use. In this race for energy savings, 76% of households have turned down their indoor temperature, which fell by almost 1 degree Celsius on average in November and December.[2] And while storage sites in Europe are 73% full, governments still have time to ponder over what needs to be done to avert an all-out energy crisis.

The anxiety among Europeans is heightened by uncertainty about the future of much-needed gas imports. Estimates by the IEA suggest that this year the bloc could be short of around 57 billion cubic meters of gas amid dwindling deliveries from Russia, with more cargoes now being diverted to Asia. That said, according to Bruegel,[3] monthly natural gas demand from industry and households in December 2022 was still 16.5% below the average for 2019-21, at 310.87 TWh (see Fig. 1).
Despite the overwhelmingly negative sentiment about Russia, the EU is ramping up imports of Russian LNG (see Fig. 2), which soared 36% to 19.4 billion cubic meters in 2022, from 14.2 billion cubic meters a year earlier.[4] At the same time, Europe is becoming more dependent on the US, with 60.6 billion cubic meters of LNG imported last year, 146% more than in 2021. LNG supplies from Africa and the Middle East rose to 27.8 billion cubic meters (+19%) and 20.5 billion cubic meters (+24%), respectively, while deliveries from other countries, albeit modest at 4 billion cubic meters, showed staggering growth of 429% YoY.

While LNG flows from Russia are growing, there is a widely shared consensus among European politicians that the bloc must dial down its purchases of Russian LNG or even give them up altogether. According to media reports, Germany’s government intends to curb imports of Russian LNG, adding to efforts to reduce its reliance on the country’s energy supplies.[5] However, replacement plans will take at least several years to implement. Amid Europe’s growing battle for energy, there are other factors that can’t be dismissed when it comes to LNG, such as high production costs and capacity shortages to mention a few.
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