Heat will stay on in Europe this winter, but after?

Europe is likely to scrape through this winter without cutting off gas customers despite reduced Russian supplies, but even adjusting to colder homes and paying more may not be enough in coming years, analysts say. “I like a hot house, I have to admit... I really used a lot of gas,” said Sofie de Rous, who until this year kept her home on the Belgian coast at a toasty 21 degrees Celsius (70 degrees Fahrenheit). But like millions of other Europeans, the 41-year-old employee at an architectural firm has had to turn down the thermostat after energy prices surged following Russia’s invasion of Ukraine in February. Russia’s progressive reduction of gas supplies to Europe via pipeline triggered a bidding war for liquefied natural gas (LNG), sending prices sharply higher. If certain countries like France and Spain froze prices for consumers, others like Belgium let suppliers more or less pass along the higher costs.

“I was a little panicked in the beginning,” said de Rous, who saw the gas bill to heat her 90-square-metre (970-square-foot) house in Oostduinkerke jump from 120 euros ($126) per month to 330 euros. She has lowered her thermostat to 18 degrees and is looking into installing double-pane windows and a solar panel. Like de Rous, the lack of concern about energy consumption of a whole generation of Europeans ended abruptly in 2022, and everyone is mindful of where their thermostat is set. If previously natural gas was cheap and plentiful, it is now scarce and expensive.

The European wholesale reference price used to fluctuate little, hovering around 20 euros per megawatt hour. This year, it shot as high as 300 euros before dropping back to around 100 euros.

“It’s the most chaotic time I’ve witnessed in all of those years,” Graham Freedman, a European gas analyst at energy consultancy Wood Mackenzie, told AFP. Sky-high energy prices have caused numerous factories, particularly in Germany’s chemicals sector which was highly dependent upon cheap Russian gas, to halt operations.

But Europeans nations were able to fill their gas reservoirs and no one has been cut off yet. “Until February, the very idea of Europe without Russian energy was seen as impossible,” said Simone Tagliapietra, a senior fellow at the Bruegel think tank in Brussels. “What was impossible became possible.” A warm autumn that allowed many consumers to put off turning on their heating also helped put Europe in a better position for the winter.

But Europeans have also made dramatic cuts, with the EU using 20 percent less gas between August and November compared with the average gas consumption for the same months in 2017-2021, according to Eurostat. In Germany, where half the households use gas for heat, data shows consumption down by 20 to 35 percent depending on the week. “That’s much more than anyone expected,” said Lion Hirth, a professor of energy policy at the Hertie School in Berlin.

“And that’s completely contradictory to the talk that we’ve been hearing from doomsday talkers saying people just don’t respond.” Energy bills are likely to remain high, and experts say a cap on gas prices agreed by the EU in December will only have a limited impact on bringing them down. In the space of several months Russia has lost its top gas customer, Europe with purchases passing from 191 billion cubic metres in 2019 to 90 billion this year.  Wood Mackenzie forecasts deliveries will fall to 38 billion cubic metres next year.

The EU has been able to import large quantities of LNG, but only by outbidding South Asian nations like Pakistan and India. This has pushed these nations to increase their dependence on coal – negatively impacting global efforts to curb climate change. Europe’s ability to import LNG has been limited by a lack of infrastructure. Port terminals capable of transforming the liquid in tankers back into gas and reinjecting it into pipelines are needed. The continent’s top economy, Germany, scrambled to inaugurate its first facility in December, while plans for 26 new terminals have been announced across Europe, according to Global Energy Monitor. And while the construction of more LNG terminals is underway, in 2023, unlike at the beginning of this year, Europe will mostly have to do without Russian gas to fill its reservoirs.

This could set up an even fiercer bidding war between European and Asian nations for supplies.

An EU gas price cap of 180 euros per megawatt hour that is scheduled to go into effect in February will likely have little impact in this case as it will not go into force if LNG prices are also high.  “The key factor is most certainly going to be: what is the weather going to be like this winter,” said Laura Page, a gas analyst at commodity data firm Kpler. “If we have a cold winter in Asia, and we have a cold winter in Europe... this fight will intensify.”

Agence France-Presse