The gas crisis in Europe is not over, despite full gas storage

A year ago, European politicians declared that the gas crisis caused by the almost complete stop of supplies from Russia was over. The EU has reached out to alternative natural gas suppliers, assuring there will be enough to prevent shortages and high prices. Now these assurances seem premature.

European gas prices hit their highest level in a year last week on news of a production shutdown in Norway. On Friday, ownership transfer costs in the Netherlands reached €43.68 per MWh, the highest since December 2023. It looks like more price hikes are on the way in the future, as the surge came despite European gas storage tanks filling up ahead of the peak demand season.

It all started innocently enough. On Tuesday, major Norwegian state-owned company Equinor suspended production on one of its platforms due to a smoke alarm. Currently, Norway is the largest supplier of natural gas to the European Union. It supplies about 30% of the EU’s gas. In reporting the incident, Equinor noted that it would not interfere with its export obligations. However, gas prices have jumped.

Of course, it’s all about supply security. It was the security of supply that prompted European gas buyers to rush to build up reserves at the start of the year and make sure they had enough in storage before the start of the winter season. Currently, the level of gas in storage in the EU is at 95%, which is an exemplary figure – but this will not save the bloc from a shortage if the winter turns out to be colder than the last two.

On the subject: Slovak state firm denies EU gas deal with Azerbaijan is inevitable

Early forecasts suggest this is exactly what could happen, further highlighting the fact that the only reason the EU survived the 2022-23 winter was due to luck bringing a milder-than-usual winter to the continent. When it comes to the security of energy supplies, you can’t rely on luck. This is why Russia is the second largest supplier of natural gas to the EU, despite sanctions and all that.

The EU itself acknowledged this in its report on the state of the Energy Union, published in September. “The share of Russian gas in EU imports fell from 45% in 2021 to 18% by June 2024, while imports from reliable partners such as Norway and the US increased,” the EU wrote, but no matter how it tried highlight the switch to Norwegian and US gas, the fact is that Russia supplies more gas to Europe than the US – no matter how much EU politicians try to stifle these supplies.

The fact that this continues is simple proof that Europe still needs a lot of gas, despite its voluntary demand cuts from 2022. According to the Energy Union report, between August 2022 and May 2024, this reduction in demand amounted to 138 billion cubic meters of gas. This is not something to be proud of, especially when businesses are closing due to exorbitant energy prices. However, the EU has done its best to put a positive spin on the demand destruction story, presenting it as a success in reducing the bloc’s dependence on Russian natural gas.

However, in focusing on this, those involved seem to have forgotten that alternative supplies are far from guaranteed. Recent price hikes are a stark reminder of this. Biden’s “pause” on permitting new LNG export terminals has been overturned in court, but it will still be some time before all the planned new capacity is built. In fact, it will take years. And Europe needs gas now because Ukraine has said it will not renew its gas transit agreement with Russia, and the Ukrainian pipeline is the only one that, in addition to LNG, still supplies Russian gas to the EU.

Bloomberg reported this week that the EU is discussing alternative supplies with Azerbaijan to replace the Russian gas flowing through Ukraine’s pipeline network to Europe – but only partially. “The contract will have to include a so-called swap agreement between Azerbaijan and Russia, since Azerbaijan does not have enough export capacity to replace existing supplies,” Bloomberg explained.

For obvious reasons, TTF prices fell when this news broke. However, the recession did not last long, and prices recovered fairly soon. As demand for natural gas rises internationally, winter approaches and the deal with Azerbaijan is not yet finalized.

All of these factors have “raised risks that gas supply prospects for Europe in 2025 may not be better than in 2024, and may in fact be worse,” Kim Foustier, head of European oil and gas research at HSBC, told Bloomberg.

If the EU does not find a complete replacement for Russian gas, it could end the winter with gas storage facilities only 30% full and prices even higher. For example: last winter the EU left the heating season with storage capacity at 58%, which was a fairly comfortable level that led to comfortable prices. In a worst-case scenario, Europe might even empty its storage to keep the lights on and heating going—Asia loves LNG, too, and winter is typically not the optimal season for wind and solar power. Europe’s gas problems are far from over.

Irina Slav for Oilprice.com

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