Living in this region, you're looking at gas prices that are approximately twice to thrice higher compared to the United States.
Gas Prices in Germany and Storage Concerns Across Europe Surge Again
Gas prices in Germany have displayed an alarming upward trend once more, as the EU grapples with reports of dangerously low storage levels, especially in the UK. Some question if Europe was adequately prepared for the conclusion of gas transit through Ukraine. Energy specialist Georg Zachmann offers insight into these pressing concerns in an interview with ntv.de.
ntv.de: After the intense energy crisis of 2022, the gas supply topic mostly faded from public discourse. Now, it's back due to low storage levels, escalating wholesale prices, and gas scarcities in certain countries, such as the UK. How serious is the situation?
Georg Zachmann: The primary cause for renewed interest in this issue was the cessation of gas transit through Ukraine at the turn of the year. Although only accounting for about 5-6% of Europe's gas imports, this event concluded a more than 50-year history of cooperation between the Soviet Union, later Russia, and Western Europe. This historical shift has raised concerns about the safety and affordability of Europe's energy supply. While there is a loss of around 6% of gas imports, European gas demand has witnessed a surge once more. Consumption during the last quarter surpassed that of the previous year by approximately 10%.
What's driving this?
A variety of factors contribute to the rise. For instance, there was a period in November when gas power plants operated more frequently due to reduced wind power production. The moderate temperatures during this period were also lower than the last two years, and a slight recovery in gas-intensive industry production also played a role. The result is that storage levels are currently lower than in previous years. However, Germany has no reason to sound alarm bells.
And what about other countries? Reports from the UK indicate "concerningly low" storage levels.
The UK presents a unique situation due to the absence of substantial gas storage facilities. The country primarily relies on LNG terminals situated offshore for gas delivery via sea routes. The lack of significant storage capacity makes it vulnerable to short-term gas shortages.
In connection with the conclusion of gas delivery through Ukraine, politicians consistently maintained that Europe was well-prepared. Was this an overly optimistic view?
Gas storage levels should suffice for the present winter. Current prices are not significantly higher than they were a year ago. However, expectations indicate a significant price hike for this summer. This increase is, in part, due to filling regulations that necessitate buying and storing gas during the summer months to attain specified minimum values at predetermined dates. In the past, market conditions decided when storage was filled. Now, this simplified guideline triggers price increases approaching these specified dates.
The current situation in Germany remains relatively stable. Nevertheless, the primary concern revolves around long-term supply of cheap gas.
In the future, gas prices in Europe are likely to resemble LNG import costs to Europe. Ongoing shipments of liquefied natural gas will continue to dominate, and these prices hinge upon the global LNG market, which has undergone significant changes recently, now bearing more resemblance to the global oil market. Predicting this market price isn't straightforward given its global scope and many uncertainties. various factors, such as US LNG export capacity expansion, global demand growth, and competition from other importers, contribute to these market fluctuations, maintaining that Europe will secure sufficient gas for its needs though, possibly not at predictable prices.
Critics from less affluent countries allege that wealthier energy consumers like Germany prevail on the global gas market, leaving impoverished nations empty-handed. Do you find these accusations valid?
Indeed, the global gas market is highly competitive. Those capable of offering higher prices receive the gas. Since the 2022 energy crisis, the market has expanded, and I don't foresee another calamity of similar magnitude occurring.
So, gas in Germany will not run out, but it will remain costly?
Absolutely; gas in Germany will incur substantial price increases. While wind and solar power generation have reduced coal and nuclear plant reliance, their intermittent nature and relying on liquefied natural gas shipping increase delivery costs, leading to prices that are at least two to three times higher than in the USA, where shale gas and oil production keep gas prices remarkably low.
Speaking of the USA, given Donald Trump's anger over the unbalanced German-American trade balance, there's an idea of Germany increasing gas imports from the USA as part of a special deal. Would that be advantageous for Germany or problematic due to the functioning global market?
German leaders may be open to addressing the new American administration's concerns by increasing gas imports from the USA. This political move could potentially result in lower gas prices if negotiated correctly and other exports enjoyed reciprocal benefits.
In Europe, there is ongoing debate about whether to also impose sanctions on Russian LNG imports. Would this impact Russia substantially given the operating global market?
Limited impacts on Russia would result from such sanctions. Europe currently imports approximately 6% of its total gas supplies via Russian LNG, representing a similarly-scaled impact as the termination of gas transport through Ukraine. If Europe imposed sanctions, it would simply buy LNG from alternative suppliers. Other importers would likely purchase Russian LNG instead, but this would make our LNG imports more expensive and less efficient due to extended transportation routes. For Novatek, Russia's main LNG exporter, this could lead to reduced export volumes, but it's unlikely to bring them to financial ruin.
The Commission has been closely monitoring the gas supply situation across Europe, particularly in countries like the UK with low storage levels.
Given the concerns over Europe's energy supply and the potential impact of Russian LNG imports sanctions, The Commission is actively exploring alternative gas sources and collaboration with nations like the USA.