Sharp changes in the geopolitical situation continue to hit the natural gas market.
Over the past week, many European countries have begun to warn of possible "gas cuts", and Germany and Austria have successively declared a "state of emergency" for natural gas.
While announcing sanctions on energy exports to Russia, leaders of EU member states are now under increasing public pressure on price issues. The consumer price index (CPI) in the euro zone rose by 7.5% year-on-year in March, setting a new record. , which is the fifth consecutive month that the euro zone inflation rate has hit a record high.
European countries are now focusing on how to quickly find new energy supplies and whether to intervene in the market by restricting prices.
The European Union and the United States reached an energy cooperation agreement to help the EU market obtain at least an additional 15 billion cubic meters of liquefied natural gas this year.
Commodity market intelligence firm ICIS LNG analyst Thomas Rodgers said in an interview with China Business News that in light of the actual situation, the EU is unlikely to achieve the goal of slashing Russian natural gas this year.
Can the EU gas storage target be achieved?
The European Commission recently announced a series of plans for energy supply security, including requiring EU member states to have 80% of their natural gas storage capacity by November 1, 2022, which is slightly lower than the 90% target fill rate proposed in early March.
The European gas storage rate was only 26% as of March 30, according to data from Gas Infrastructure Europe.
Russia currently supplies 40% of the EU's natural gas.
Increasing gas storage reserves will undoubtedly help the EU reduce its dependence on Russian energy and its potential impact.
European Commission executive vice-president Valdis Dombrovskis said the EU was currently assessing all scenarios, including the possibility of Russia stopping gas supplies to the bloc, as part of drafting a contingency plan to meet gas demand.
Generally speaking, the summer of low consumption is the time window for filling natural gas storage facilities in Europe, and gas injection traditionally starts on April 1 and lasts until September 30.
October 1st to March 31st of the following year is the winter consumption period.
Weather forecasts in Europe show that a new round of cold waves hit Europe last weekend, with temperatures dropping by more than 10°C in many places. The cold wave is expected to last for many days, which will pose challenges for the upcoming gas storage nodes, which may threaten the prospects of energy supply this winter. .
Industry statistics show that up to 30% of energy consumption in the EU in winter comes from inventories.
Dombrovskis said EU demand for Russian gas would be cut by two-thirds by the end of 2022, under the European Commission's plan, to get rid of it entirely by 2030.
Going forward, the EU will focus on accelerating the replenishment of winter gas inventories and ensuring the availability of affordable, safe and sustainable energy.
As Russian gas was forced to withdraw, the supply gap left by it became the target of public criticism, and the United States took the lead in the competition with traditional suppliers such as Australia and Qatar.
In January, the European Union received five times as much U.S. natural gas as Russia’s pipelines, the U.S. Energy Information Administration (EIA) data showed, the first time in history that the U.S. surpassed Russia’s deliveries.
The development of the shale oil and gas revolution has made the United States a formidable force in the global energy market.
Between 2017 and 2020, a large amount of oil and gas pipeline infrastructure was completed in the United States, making it possible for the United States to export large quantities of liquefied natural gas (LNG) to Europe.
Data from financial data technology company Refinitiv showed that in the past March, U.S. LNG exports were about 7.43 million tons, an increase of nearly 16% month-on-month and a record high.
Europe has been the largest export destination for U.S. LNG for four consecutive months, accounting for about 65% of overall exports.
Rogers told reporters that European LNG imports had surged to an all-time high before the escalation in Ukraine.
The extra risk premium from the conflict is driving up prices in Europe, and high premiums are drawing energy cargoes from around the globe.
However, it should be noted that, considering that Russia's natural gas exports to Europe reached 155 billion cubic meters last year, the assistance of all parties is far from enough at this stage.
Rogers said it was not easy or practical for Europe to reach its goal of cutting Russian gas.
“On the one hand, Europe has limited space to offload additional LNG. On the other hand, Gazprom has long-term contracts with utilities across Europe, and this supply agreement has some flexibility if Europe can Continuing to import LNG at the current rate, without major disruptions to flows from Russia, European gas inventories could be better this winter than in 2021," he said.
Rogers expects Russian gas exports to fall back to 110 billion cubic meters in 2022.
Energy consultancy Wood Mackenzie said in a report that if Russia cuts off gas supplies to Europe now, Europe will still have enough gas to last through the end of this winter and into the following summer.
But after leaving Gazprom, demand cuts in 2022-23 will be inevitable.
EU expands access to energy security
While Europe is eager to end its reliance on Russian gas.
The biggest practical difficulty is that once pipelines carrying Russian gas have been ruled out, options for adding pipeline gas from other sources are very limited, as the expansion of existing routes or the laying of pipelines to import gas from Norway and Azerbaijan will take a long time to complete.
As the world's top three natural gas exporters, Qatar's Minister of State for Energy Affairs Saad Sherida Al-Kaabi said recently that Qatar will continue to supply natural gas to Europe.
"From a commercial point of view, we will not choose either side," he said, commenting on the Ukraine crisis. "While Qatar is willing to increase its supply to Europe, most of its LNG exports are tied to long-term contracts and are already firmly Locked down, currently only about 10% to 15% of the inventory can be moved to Europe.”
In this context, the International Energy Agency (IEA) has also recommended that the EU see LNG as a key option for increasing supply in the short to medium term.
Currently, the utilisation of existing LNG import infrastructure in Europe is near the highest level.
ICIS senior LNG analyst Alex Froley pointed out that Europe should focus on expanding LNG imports on floating storage and regasification units (FSRUs).
This is the fastest way to develop natural gas import infrastructure in recent years, and its key technologies include the use of converted LNG tankers berthed in or out of ports. The production process of receiving, storage and regasification has gradually matured and is widely used in Italy, Croatia and Lithuania and other countries are widely used.
Since a typical FSRU can bring in around 4-6 million tons of LNG per year, Europe may need multiple FSRUs to fully backfill missing Russian pipeline gas.
French gas system operator GRTgaz confirmed last week that France could install an FSRU at the port of Le Havre.
GRTgaz added that the FSRU connection could allow France to increase its regasification capacity by almost 4.2 billion cubic meters.
In addition to the Middle East and the United States, the African continent, which is also rich in oil and gas resources, deserves European attention.
Florey told Yicai Global that Africa would be a potential source of natural gas for Europe.
He cited the recent example of Italy's Eni's plans to start a new LNG project off the coast of the Republic of Congo in less than two years.
The International Energy Agency (IEA) has also provided alternative recommendations for European energy security, which it plans to help Europe reduce its Russian gas imports without affecting the implementation of Europe's green energy plan.
Accelerating the development of wind and solar projects is one of the keys.
IEA analysis shows that just resolving the issue of licensing approvals could bring an additional 20TWh of electricity to the European grid next year, and an investment of 3 billion euros to incentivize some residential PV installations could add another 15TWh.
The IEA estimates that the two measures combined could reduce natural gas use by 6 billion cubic meters.
The IEA also recommends that the EU increase the supply of biogas and biomethane, which in 2022 expects its renewable energy generation to grow by 15%.
Nuclear power is also one of the options for supplementing the energy supply in Europe.
The first financial reporter noticed that France has taken a major step in upgrading its nuclear power program. The country will build several new nuclear reactors by the state-controlled energy giant EDF (EDF).
French President Emmanuel Macron proposed in February that France's existing nuclear power plants will operate with a life extension from 40 years to more than 50 years under the premise of meeting safety conditions.
In addition, France will build 6 nuclear power units from 2028, and the first unit will be put into operation before 2035. On this basis, France also plans to build 8 more units, and add 25 million kilowatts of nuclear power installed capacity by 2050.
At the same time, other EU countries are also accelerating the deployment of nuclear power.
For example, the Netherlands has expressed its desire to increase nuclear power capacity, Poland is also seeking to join the nuclear energy club, and the United Kingdom, which has left the European Union, is planning to phase out old power plants and build new ones.
British Prime Minister Boris Johnson said recently that Britain needs nuclear power to meet its energy supply.
Author: Fan Zhijing Editor in charge: Ge Weier