Aurora Energy researchers expect a new remodel if Russian gas is cut, as both Italy and the Netherlands are likely to send gas to Germany. “Germany would make use of the surplus LNG capacity that the Netherlands has,” says Gaetano Garfi, Aurora’s senior commodity analyst.
But as prices rise amid competition from scarce supplies and industrial users are already called upon to reduce demand, disrupting markets through state intervention remains a risk. Leaders have called for unity.
“A supply crisis in one member state will lead to an economic crisis in another,” German Economy Minister Robert Habeck said last month. “Here we are both bound and dependent on solidarity.”
After Russia shut down gas supplies to Ukraine in 2006 and 2009, the EU strengthened measures that forced member states to help each other with gas supplies. Since then, bilateral solidarity agreements have been signed between Germany and Denmark, and between Finland and Estonia. In principle, pipes should be installed between Member States in order to quickly change the direction of flow. In practice, several exemptions apply.
Although the UK is less exposed to Russian gas cuts (it usually imports less than 4 units directly), it suffers from side effects in Europe. Meanwhile, his exit from the EU means he is no longer protected by the bloc’s solidarity rules.
While the UK typically exports gas to the EU in the summer, it imports both gas and electricity during the colder months, making use of storage capacity in Europe. In recent years, more electric cables have also been built connecting the UK with the mainland, balancing wind and solar supply.
Russia’s invasion of Ukraine and its threat to gas supply has started a struggle to refill European gas storage sites earlier this winter. High prices have led to additional imports from around the world. The U.S. shipped about 75 percent of its natural gas shipments to Europe in mid-April, compared to 35 percent at the same time last year. Since then, the rate has accelerated, according to Caspian Conran, energy economist at Baringa Partners.
The UK has also served as a bridge to Europe, converting LNG shipments back into gaseous form to terminals in South Wales and Kent and transporting them to Europe. In total, EU gas storage stocks are almost 60% full, slightly above the average for this time of year.
However, recent cuts in Russian supply have slowed things down, increasing the risk that the EU will not reach its target of 80% of stocks in October. This would weaken Europe’s hand in trying to stop Vladimir Putin’s war and strengthen its power over Europe.
“It was going too well, and in fact Putin intervened to make our lives more difficult,” Tagliapietra says.
Difficulties in supplying gas, a key fuel for power plants, occur when power markets are already under stress. Production at France’s state-owned EDF nuclear power plants is expected to fall by 20% this year due to disruptions to the aging fleet. Hydroelectric capacity in Norway, Sweden and other markets has also fallen due to warmer weather.
“There’s definitely risk,” says Dan Eager, a specialist in Wood Mackenzie’s European electricity market. Electricity prices in Germany hit an all-time high last week as markets picked up threats to Russian gas.
In the UK, National Grid’s contingency plans include the possibility of closing gas pipelines to Europe via Belgium and the Netherlands, the Financial Times reported. Bart Jan Hoevers, President of the European Network of Transmission System Operators for Gas [Entsog]urged the UK to “reconsider” the outlook, noting that the pipelines were “beneficial to the UK in the winter”.
Britain also relies heavily on Norway, which supplied around 60% of its gas last year, surpassing domestic drills for the first time as the largest supplier.
Analysts say there is a risk that the EU could divert some gas supplies from Norway, which is within the single market, to the bloc in the event of an emergency under solidarity rules. The same rules could also be used to block UK access to EU gas storage.
However, spare pipeline capacity between Norway and the EU is limited, while many gas platforms on the Norwegian side of the North Sea feed directly into Britain. The Brexit agreement also offers some coverage, forcing the EU and the UK to cooperate on security of energy supply and “only activate non-market-based measures as a last resort”.
Despite the risks, mutual interest is expected to be sufficient to maintain the flow of markets. “The analysis and modeling we’ve done shows that the best overall outcome is to cooperate,” says Caspian Conran of Baringa.
Eager, in Wood Mackenzie, agrees. “Sometimes you benefit from interconnectors [connecting electricity markets] and sometimes you feel worse. But overall, it’s an opportunity to spread the pain. “
A UK government spokesman said: “We have full confidence in our security of supply during the winter as the UK has one of the most reliable and diverse energy systems in the world.