2023 may be a 'sterner test' for EU amid dwindling Russian gas exports, IEA says

The region is “not out of the danger zone yet”, says Fatih Birol, IEA’s executive director.

A coal-fired power station in Germany. Some European countries have have restarted coal-fired power plants amid natural gas shortages. Reuters

The International Energy Agency has warned that 2023 may present a “sterner test” for EU countries as Russian gas exports dwindle and Chinese demand for liquefied natural gas (LNG) rises.

The EU could fall short by about 27 billion cubic metres (bcm) of gas next year if Russian gas deliveries drop to zero and China’s LNG imports rebound to 2021 levels, the agency said in a report on Monday.

The region has made “significant progress” in reducing reliance on Russian gas supplies but it is “not out of the danger zone yet”, said IEA executive director Fatih Birol.

“Many of the circumstances that allowed EU countries to fill their storage sites ahead of this winter may well not be repeated in 2023.”

The agency said that the risk of shortages can be avoided through “stronger” efforts to improve energy efficiency, as well as use more renewable energy and further diversify natural gas sources.

The report comes before the start of a meeting of EU energy ministers on December 13, where they are expected to discuss a potential natural gas price cap.

The move to impose a ceiling on Dutch TTF gas futures, the European benchmark contract, has previously been rejected by several countries, including France and Spain.

European Commission president Ursula von der Leyen said the cap would seek to control "price spikes" without affecting natural gas shipments to Europe.

"The issue is to find the right balance ...I very much hope that we will come to a conclusion within the next [few] days," said Ms von der Leyen during a press conference.

The EC President also spoke about the possibility of entering long-term natural gas contracts with Norway, which has emerged as the EU's leading gas supplier.

"I would also highly appreciate if there is a possibility to have Norwegian energy supply companies join our joint purchase platform," she added.

The platform was established earlier this year for the common purchase of natural gas, LNG and hydrogen at stable prices.

European countries have signed several LNG import agreements with the US and Gulf countries over the past few months.

Last week, the UK and the US announced a new energy partnership they said would help reduce Europe's dependency on Russian gas and oil.

Under the new UK-US Energy Security and Affordability Partnership, Washington will export at least nine to 10 bcm of LNG over the next year via UK terminals, more than double the level of last year.

QatarEnergy has signed two sales and purchase agreements with US oil and gas company ConocoPhillips to deliver up to two million tonnes of LNG annually to Germany.

In October, Austrian energy company OMV signed a preliminary agreement with Abu Dhabi oil company Adnoc with the aim of purchasing an LNG cargo for next winter.

“While Europe’s options to import more natural gas are limited, there are a handful of countries with spare export capacity who could increase exports by capturing gas that is currently being flared,” the IEA said.

The amount of gas in EU storage sites is “well above” the five-year average — thanks to measures taken by European governments and the “demand destruction” caused by huge price increases, the agency said.

A recovery in nuclear and hydropower output from decade-low levels will also help to narrow the supply gap, the IEA said.

In its report, the IEA called for the speeding up of the permit issuance process for renewables through measures to boost administrative resources and simplify procedures.

It also proposed more financial support for heat pumps and changes to tax laws that penalise electrification.

In May, the EU launched the REPowerEU plan, which comprises measures to tackle the energy crisis triggered by Russia's invasion of Ukraine.

With the help of the programme, the bloc plans to reduce demand for Russian gas by two thirds before the end of the year, with a mobilisation of up to €300 billion ($317 billion) in investments.

“We are now turning our focus to preparing for 2023, and the next winter,” said Ms von der Leyen

“For this, Europe needs to step up its efforts in several fields, from international outreach to joint purchasing of gas and scaling up and speeding up renewables and reducing demand.”