EU-Russia Gas Dispute Looms as Putin Faces Potential Loss Amid Ongoing Tensions

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Good news for Europe as they prepare for a milder winter and lessen their dependence on Russian gas. According to a recent European Commission analysis, Europe's gas storage centers are set to be over half full by the end of March, providing a strong foundation for next winter.

This means Europe could withstand winter chills without significant harm, even as Russian President Vladimir Putin attempts to weakened their gas supply. The mild winter, increased liquefied natural gas (LNG) imports, and decreased gas consumption have brought about this positive forecast.

Not long ago, fears of gas shortages this winter persisted due to disruptions in Russian pipeline products. However, the combination of factors above has led to over 50 billion cubic meters (bcm) of gas being predicted to remain in storage by March's end.

A senior European Commission official attributes Europe's success in safeguarding its gas supply to a mix of planning, luck, and unusually mild weather. "A significant part of the success results from abnormally mild climate and China's market withdrawal due to COVID restrictions," the official stated. "However, storage policy, demand reduction, and framework have played an essential role too."

Ending the winter heating season with approximately half of the total EU gas storage capacity filled eliminates any lingering concerns about a gas shortage in the short term. It also alleviates worries about Europe's power security going into next winter.

The pleasing figures support the more hopeful outlook presented by EU leaders in recent days, with Energy Commissioner Kadri Simson stating that Europe appears to have "won the first battle" of the "energy war" with Russia.

Last winter, EU storage centers closed only around 20 percent full. Brussels had mandated that they be restored to 80 percent ahead of this winter, requiring expensive flurries of LNG acquisitions by European customers to compensate for lost gas from Russian pipelines.

Wholesale gas prices soared during the storage filling period, reaching over EUR335 per megawatt hour in August. This had alarming ripple effects for household expenses, business energy costs, and Europe's commercial competitiveness. But gas rates have dropped since then, retreating to just over EUR50/Mwh amidst decreasing concerns about products.

Europe now has new targets to fill 90 percent of gas storage again by November 2023, a task that will require less purchasing of LNG on the international market than it might have if storage levels had been more severely depleted.

"The anticipated high degree of storages at above half [at] completion of this winter season will be a strong starting point for 2023/24 with less than 40 percent to be loaded (against the hard starting point of around 20 percent in storage at the end of winter in 2022," the analysis states.

Analysts at the Independent Commodity Intelligence Solutions think tank predict that replenishing storage this year could still be "as difficult a challenge as in 2021" but expect the EU now to have "ample import capacity to meet the challenge." Across the EU, five new floating LNG terminals have been established, increasing gas import capacity by 30bcm. More capacity increases are expected by the end of this year and beyond.

However, EU's ability to refill storage to the new 90% target before the next winter will likely depend on ongoing gas consumption reduction efforts. This might require extending the 15% gas demand reduction target beyond its expiration day of March 31 to prevent gas demand from rebounding as prices fall. EU power ministers are scheduled to address this issue at two upcoming meetings in February and March.

Last Updated: 16 February 2023

Insights:

In June 2022, the European Union issued a regulation requiring member states to fill underground gas storage facilities to at least 80% capacity before the 2022/2023 winter, and to 90% in subsequent years. This directive was quickly implemented, and by October 2022 storage levels reached about 90% capacity across the EU.
Countries such as France, Belgium, Portugal, and Poland filled their storage almost completely, with France reaching 99% capacity by early October 2022. France's reserves alone represented about two-thirds of the winter consumption of small and medium enterprises and private households.
The EU targeted a reduction in natural gas consumption by 15% during the critical period from August 2022 to March 2023. Gas need actually dropped by more than 20% between August and December, partially due to efficiency measures but also because customers responded to higher prices by using less energy.

The renewable-energy industry in Europe stands to benefit from the current situation, as less dependence on Russian gas could lead to increased investment in alternatives.
The recent positive news about Europe's gas storage levels could have significant implications for the finance sector, as a surplus of gas might lower the demand for liquefied natural gas (LNG) and oil-and-gas products.
The policy-and-legislation surrounding energy in Europe might see a shift, given the success in safeguarding the gas supply and the new target to fill 90% of gas storage.
The general-news coverage might focus on the role of politics in Europe's energy security, as discussions about extending the gas demand reduction target beyond March 31 are scheduled for February and March meetings.