Analysis: Europe is fueling up but the race to replace Russia is far from over
- No respite for households facing rising energy bills
- Europe aims to phase out Russian fuel consumption by 2027
- Russia has already cut gas to some European buyers
- Europe cannot rely on LNG alone to fill the void left by Russia
LONDON, June 14 (Reuters) – Even if Europe can fill its gas storage, Europe faces a perilous winter and governments will have to keep rationing plans handy as they rush to get more liquefied natural gas (LNG) to keep pace with rapid growth. move away from reliance on Russian fuel.
For European households, meanwhile, there is little respite from exorbitant fuel prices that have weighed on budgets, squeezed disposable income and weighed on economic prospects.
The European Union aims to end dependence on Russian fossil fuels by 2027. But Moscow has already cut gas flows to Bulgaria, Poland, Finland, Danish supplier Orsted, Dutch company Gasterra and Shell for its German contracts, after they all rejected a request from the Kremlin to switch to ruble payments. Read more
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The 27-member European Union, which has traditionally depended on Russia for 40% of its gas needs, aims to have its gas storage 80% full by November, up from about half now to see it through winter, when stored gas typically meets about a quarter of demand. Analysts say it’s on the right track. Read more
But there is still a big gap to fill from other sources, such as LNG, and it will be even bigger if Russia cuts flows to more European buyers, although Moscow says it is meeting its obligations. and sees no need to stop deliveries to other customers. .
“A complete shutdown of Russian flows would undoubtedly be Europe’s worst-case scenario for this winter, as the continent is unlikely to be able to source enough from other producers to compensate for a supply disruption. important,” said Leon Izbicki, European Natural Gas Partner. to Energy Aspects.
Even before Russia invaded Ukraine in February, triggering an energy crisis in Europe, demand for gas had skyrocketed in the post-pandemic recovery. The LNG market, dominated by long-term contracts, was already tight as a drum.
The EU has increased its LNG purchases, with imports up around 58% in the first five months of 2022 compared to 2021 levels, according to Refinitiv data, as more capacity entered in service in the United States and that high prices in Europe attracted the cargoes.
The United States, a major LNG producer, has promised to help Europe with more shipments.
But Europe has limited capacity to receive LNG and, adding to the uncertainty, Freeport LNG, operator of one of the largest US export plants, said on Tuesday it would take at least 90 days to resume. partial operations after an explosion last week. Read more
“If Europe goes through the winter relying solely on LNG supplies, things could get tricky,” said Evangeline Cookson, research analyst and meteorologist at commodity broker Marex.
Unlike piped gas which can be ramped up quickly, shipping LNG can take weeks and can be disrupted by weather conditions.
The U.S. National Oceanic Atmospheric Administration said last month there was a 65% chance of an above-normal Atlantic hurricane season, including six to 10 hurricanes. Read more
Energy Aspects’ Izbicki said the stored gas could see Europe through 2022, even without Russian supplies, but that would leave it struggling when winter hits at the end of 2023, so governments won’t could not yet suspend their rationing plans.
Germany, which historically depended on Russia for about half of its gas needs, has already launched plans for an auction system to help ration gas to energy-intensive industries if supplies are cut. Read more
France has implemented measures to limit the supply of gas to large consumers in the event of a shortage. Read more
Poland, already cut off from Russian gas, has increased its LNG imports, opened a gas link with Lithuania in May and aims to open a new gas pipeline to Norway this year. But it still has plans in place to limit gas to heavy industry in a crisis so it can keep homes and utilities supplied. Read more
Yet rationing would have a heavy economic toll. Berenberg chief economist Holger Schmieding estimated that EU economic output would be 2% lower by the end of 2022 if Russian supplies were cut off now.
Gas accounts for more than 20% of EU energy consumption, being used for heating homes, generating electricity and making vital products such as fertiliser. Meanwhile, soaring fuel prices are already having a ripple effect.
“Even without an embargo, high gas prices weigh heavily on consumers, leaving them with less money to spend on other goods and services,” Schmieding said.
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Reporting by Susanna Twidale in London; Additional reporting by Nora Buli in Olso, Bozorgmehr Sharafedin in London, Forrest Crellin in Paris and Marek Strzelecki in Warsaw; Editing by Veronica Brown and Edmund Blair
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