After Russia's invasion of Ukraine, some ideologists in Iran discussed the "Rush Winter" scenario in Europe, suggesting it presented a golden opportunity for Iran to gain leverage in the West. While Europe did endure a winter marked by a scarcity of energy resources and high costs, the situation evolved. Europe now boasts ample LNG storage and is exploring the potential of reducing its dependence on Russian gas to facilitate energy transition.
Is Europe's gas situation improving, and has the region managed to stabilize its energy crisis as winter approaches?
In 2022, Europe saw a significant increase in its expenditure on oil, gas, and coal, surpassing the previous year by over €1 trillion. This doubled the share of its GDP allocated to energy costs.
In response, Russia imposed sanctions, leading to a tightening of the global gas market, especially in Europe, where Russia had previously supplied around 40%of the natural gas.
In the short term, Europe must prioritize sufficient gas storage to navigate through the winter, decrease reliance on Russian gas, and either maintain or reduce gas demand. Several initiatives have been implemented to achieve these objectives.
One such initiative involves introducing minimum gas storage obligations, targeting at least 90%capacity for winter 2023/24 and beyond. This enhances the EU's energy security and aims for a more balanced storage cycle throughout the year.
Additional policies have focused on the liquified natural gas (LNG) market, including mechanisms for LNG procurement to reduce price volatility through better coordination and storage.
Concurrently, the EU Council introduced the Joint Purchasing Mechanism, facilitating joint purchasing and efficient demand-supply matching, even for countries outside the EU.
Recent reports indicating "too much gas" in Europe demonstrate a remarkable shift in the situation for the EU, as highlighted by Q.Z.com.
Thus far, these initiatives have yielded success, with Europe's gas storage reaching 79%by July 4th. If the current refill rate persists, storage is expected to reach its target capacity before October. Consequently, gas prices have significantly declined in the first half of the year.
However, the EU must remain committed to its long-term objectives in the face of upcoming challenges, particularly as the southern regions of Europe grapple with severe heatwaves.
It is crucial to maintain the policies and interventions that have curbed energy demand in the EU, ensuring that a surge in demand doesn't occur when the energy crisis subsides.
The energy crisis has expedited Europe's transition, bolstering security and prompting consumption reductions. This period of upheaval also provides an opportunity to build on progress and further advance a diversified and resilient energy system.
The risks are notably pronounced for Europe's industrial consumers, who would be the first to experience gas supply cuts should the situation worsen.
According to the World Economic Forum, an estimated 27 bcm (billion cubic meters) can be added to the European Union's gas balance in 2023 while aligning with broader energy and climate goals. Achieving this primarily involves reducing natural gas demand through enhanced efficiency, accelerated renewable deployment, behavioral shifts, and heat electrification. Urgency is paramount, and the focus is on pragmatic, rapid-action steps.
Additionally, the World Economic Forum's report suggests an investment of around EUR 100 billion is needed for the supplementary actions that bridge the remaining 27 bcm gap in 2023. Roughly half of this funding is allocated to efficiency improvements, particularly building retrofits, while 40%supports renewables. The remainder finances heat pump installations, biomethane projects, and efforts to reduce flaring and methane emissions.
