EU 'must continue reducing energy demand before next winter'

Governments should keep shifting away from gas and increasing use of renewables, report says

A cargo ship to supply liquefied natural gas, at Zona Franca near Barcelona. Reuters

Energy experts have warned that the EU must continue to reduce demand and press on with a shift away from gas to avoid shortages next winter.

In a report titled Preparing for the next winter: Europe’s gas outlook for 2023, Brussels-based think tank Bruegel said: “Europe’s gas supply-demand balance will remain a tightrope walk for the next two years.”

Bruegel said Europe must continue building floating regasification units as part of efforts to secure gas imports, including by signing a limited number of new long-term liquefied natural gas contracts as long as they respect the bloc’s climate goals.

Coupled with a reduction of gas consumption, this may allow Europe to compensate for the sudden end of Russian gas imports, which represented 40 per cent of total imports before Russia’s invasion of Ukraine last year. The report indicated that Russia still exports 10 to 15 terawatt hours per month of LNG to the EU.

The reduction in gas consumption for heating among households exceeded has expectations this winter, with demand falling more than 30 per cent below average across EU countries in October and November, Bruegel said.

On the supply side, EU officials have repeatedly warned that while the continent managed to fill its gas storage facilities last summer at record-high prices, reaching the same level of storage for the winter of 2023 will be more complicated without access to Russian gas.

European Commission President Ursula von der Leyen said in December: “We know that 2023 will be tougher, and we may face a potential shortfall of almost 30 billion cubic metres of natural gas next year.”

Bruegel recommended that the continent ensure that its gas storage facilities are 90 per cent full by October 1, in addition to extending its demand-reduction target which will expire on March 31.

“Under normal weather, the required reduction ranges from 14 per cent to 20 per cent, depending on Russian pipeline imports,” read the report, published on Thursday.

The report noted structural changes in household behaviour, with a record increase in heat pump use. It expects the electricity-powered devices to reduce EU gas consumption by 0.5 per cent this year.

European policymakers must continue supporting this shift away from gas, said the report. “This involves enabling rapid deployment of renewables and the accompanying grid infrastructure, energy-efficiency measures, help for households that want to switch to cleaner heating, and collaboration with industry to accelerate adoption of new low-carbon production methods,” it added.

One of the consequences of the war in Ukraine has been that national European gas markets are more tightly connected than they were before the war. Such interconnectedness also means that there is a higher chance of spillover effects. “Higher consumption in one country will draw away gas from neighbouring countries,” said the Bruegel report.

But it also means that EU countries must show more solidarity by purchasing gas jointly and agreeing on household subsidies.

“Joint gas purchasing via the EU’s Energy Platform, with its requirement that countries use it to fill 15 per cent of their storage obligations … is a step in the right direction,” said Bruegel.

EU countries have agreed to joint purchasing, but this has yet to be implemented. On January 16, EU Commission Vice President Maros Sefcovic called on European industry to express interest in joining a consortium to move forward with joint purchasing before the summer.

The report ended with a warning that Russia may try to selectively sell gas to EU countries in return for political favours. The EU has so far not sanctioned Russian gas exports.

“Energy weaponisation can work both ways: not only cutting demand, but also sending cheap energy to friends,” said the report. “Such a scenario might seem far-fetched, but it remains legally possible.”