Things looked bleak for Europe last autumn, with Russian President Vladimir Putin restricting natural gas exports to the continent, and low southern European hydropower output and French nuclear shutdowns exacerbating Europe’s energy crisis. However, the continent managed to see through this winter and ensure energy security with a combination of luck and effective planning.
EU leaders agreed to reduce gas consumption by 15% between 1 August 2022 and 31 March 2023 compared with the average in the same period over the previous five years. This led to a range of demand controls being announced in national capitals. In France, for example, the Parisian authorities switched the Eiffel Tower’s lights off an hour earlier than usual and made municipal pools 1°C cooler. German cities also chilled their pools, and the country banned illuminated advertising hoardings and ruled that radiators in corridors, foyers and entrances of public buildings be switched off.
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EU states also massively boosted their liquefied natural gas (LNG) imports, out-pricing other markets to increase imports by 60% in 2022 compared with the previous year. The world’s third-largest gas exporter, Norway, was also able to ramp up gas deliveries by around 8% in 2022 compared with 2021, so that by the end of the year it was Europe’s top supplier of natural gas.
The ‘luck’ element can be seen in how the continent ended up experiencing the third-warmest autumn on record, postponing the need to switch heating on and allowing utilities to fill their gas storage facilities up to the limit. Favourable conditions continued into winter: In January, temperature records were broken across Europe, with the mercury in many cities across central and eastern Europe hitting close to or above 20°C (68°F), as opposed to the sub-zero temperatures typical for this time of year.
LNG supplies a worry for energy security
At the start of February 2023, the EU had more gas in storage than it did at the same point in 2022. The continent has benefitted from lower demand in other markets globally, as well as largely smooth operations at LNG transport facilities. There is a real risk that both these factors could change.
In June 2022, a fire at the Freeport LNG liquefaction facility in Texas temporarily reduced US export capacity by around one-sixth. A subsequent review found that the blast resulted from inadequate testing procedures and operator fatigue, among other problems. The event increased LNG prices, and the seven other major US LNG facilities ran close to full capacity as a result.
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By GlobalDataFreeport LNG only gained approval for reopening in February 2023, meaning that US exports of LNG had been limited for eight months. In practice, this mattered little to Europe as regasification facilities were already operating at capacity, but if there are more incidents at more facilities over the coming year, Europe’s gas supplies could be hit.
Supply disruptions risk having a greater impact if LNG demand is higher next winter than it was in 2022, with less slack in the global supply chain. As things stand, analysts anticipate there will indeed be greater demand for LNG in 2023.
China is expecting growth of more than 5% in 2023, with the EU and Japan – another major LNG market – also expecting to see their economies grow (by 0.8% and 1.8%, respectively). Healthy Chinese growth in particular is set to mark a significant shift from last year, when Europe benefitted from lower energy demand than usual in China, largely as a result of weak Chinese economic performance that stemmed from the country’s zero-Covid policy.
With China also boosting Russian gas imports through the Power of Siberia pipeline by 50%, Chinese LNG demand fell by 20%, and Europe was able to divert LNG tankers bound for Asia to its shores.
“We may have more time to plan, but other things are not so much in our favour this year,” explains Antony Froggatt from the think tank Chatham House. “China’s economy is likely to pick up now that Covid restrictions are not in place, and Europe’s economy is expected to pick up also – and obviously, if you see significant increases in economic output, so too will energy consumption increase.”
Russia ending gas supplies
It was only towards the end of 2022 that Russia began restricting flows of gas to Europe, while the attacks that damaged the Nord Stream pipeline took place at the end of September. “Russian gas was therefore still available for most of last year, and European countries were able to buy large quantities of it to fill their storage facilities,” explains Philipp Lausberg from think tank the European Policy Centre.
This year, Europe has access to a much smaller supply of pipeline gas available to keep supply levels high, with only two pipelines out of five still running: TurkStream, which runs from Russia to Turkey through the Black Sea, and a further pipeline that runs through Ukraine.
If Russia turns off the gas in these two remaining routes, and if Europe faces a cold winter, the continent could be in trouble.
The Belgian think tank Bruegel has modelled the impact of different winter temperature scenarios if Russia does or does not restrict gas flows and the EU maximises LNG imports. The worst-case scenario would see Europe having to reduce gas demand by a hefty 26% compared with the previous five-year average.
The good news is that Europe has shown itself very capable of reducing gas demand. The bloc reduced natural gas use by 19.3% from August 2022 to January 2023 compared with the average gas consumption for the same months in the previous five years, says the European Commission.
However, just because the EU showed great unity and decisiveness once does not mean it will do so again. The bloc also has a history of struggling to come together on key decisions. At the moment, for example, governments are sparring over plans to support industry in the face of high energy bills and US subsidies, with fears that current plans will favour France and Germany. The European Environmental Bureau, an NGO, also noted in December that one-third of EU nations had yet to introduce measures to reduce energy demand.
Boosting the green agenda
One area widely praised in Europe’s policy response to the war in Ukraine that will keep delivering dividends over the coming year has been the boosting of green policies. “The increases to clean energy targets in the past year and years are impressive and will deliver improved energy security,” says Lauri Myllyvirta, lead analyst at the Centre for Research on Energy and Clean Air.
“This winter and the consequences of Russia’s invasion of Ukraine have made it unequivocally clear that fossil fuels don’t deliver energy security; they undermine it,” adds Pieter de Pous from think tank E3G. “Europe has responded by hitting the accelerator on its domestic clean energy transition.”
The REPowerEU policy package aims for 45% European renewable energy by 2030. In practice, this translates to 69% renewable electricity, 32% renewable transport and 60% renewable energy in buildings.
This renewed ambition is already delivering results. Last year, wind and solar generated a record fifth of EU electricity (22%), overtaking natural gas for the first time (20%). Market trends also suggest that the record 2.2 million heat pumps installed in 2021 will be far surpassed in 2022, says Bruegel.
However, concerns remain that the landscape is not as conducive to renewables as it might be.
“There is a lot of work to do to translate those targets into implementing policies,” says Myllyvirta. “If I had to highlight one challenge, it would be excessively cumbersome permitting processes that are holding back onshore wind and electricity transmission projects in particular.”
Adel El Gammal, secretary-general of the European Energy Research Alliance and professor of geopolitics at the Free University of Brussels, adds that while “we can only praise setting highly ambitious targets” in REPowerEU, “the unprecedented ramp-up in deployment rates might be hampered by bottlenecks in the respective supply chains, some of which seem difficult to remove”. He cites skills, grid reinforcement and permitting as potential challenges.
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Ben Allen, director of the Institute for European Environmental Policy, another think tank, also argues that target-driven incentives like REPowerEU can risk “perverse and unintended outcomes”, such as when the EU’s original renewable energy directive stimulated a substantial production of crop-based biofuels. He warns that mistakes could be made where fuels like hydrogen and bio-methane are encouraged, when renewables like wind and solar should remain the priority.
Chatham House’s Froggatt adds that the “knee-jerk” response to build more LNG facilities will mean there is very significant LNG capacity in Europe in 2025–26, which risks “locking the continent into long-term, highly polluting gas deals”.
Energy security: No room for complacency
The numerous factors influencing European energy security this year paint a complicated picture. Other factors – including the fact that French nuclear generation seems to be recovering – further complicate matters.
This complex situation means that, while all quarters advise caution, there is disagreement as to how worried people should be about next winter’s energy security.
Germany’s Institute for Economic Research argued in a recent report that the country is unlikely to face gas shortages this winter, given imports from Norway, Belgium and the Netherlands, as well as the country’s new floating LNG terminals. Lausberg of the European Policy Centre similarly says “we shouldn't be as worried as last year”. Myllyvirta suggests that “the outlook isn't as tight as it was last autumn but is tight enough that high prices will likely have to persist to align consumption with limited supply”.
Elsewhere, however, Michael Stoppard from S&P Global Commodity Insights has warned there is “no slack in the [LNG supply] system”, while the International Energy Agency has said the EU could face a gas shortage equivalent to 10% of its pre-crisis gas demand this coming winter.
E3G’s de Pous believes that next winter “has the potential to be even more challenging than the current one”. Meanwhile, Tosin Coker, an analyst at Energy Monitor's parent company GlobalData, says: "The global LNG market is expected to be tight over the next year and probably the next few years too, as many European countries reduce their dependency on Russian piped gas... And countries are willing to pay the high prices in order provide energy security for their nation."
Chatham House’s Froggatt adds that Europe’s success in 2022 can be partly attributed to the fact that the entire continent was “in crisis mode”. He suggests there is a risk this year that subjects like energy security and the Ukraine war will “no longer be water cooler conversations”, and that the public “may no longer pay attention to information campaigns”.
Conversely, Albéric Mongrenier from the Centre on Regulation in Europe points out there is also inherent risk to politicians and the public being hyper aware of energy security issues. “I hope we keep worrying enough so that it keeps us moving in the right direction, but hopefully not to a point where it is ‘panic on board’ and gas markets start going crazy again,” he says.
It remains uncertain what to expect next winter, but Europe can take some comfort in the fact that no one would have expected it to achieve what it did over the past year in diversifying away from Russian energy so rapidly. What is more, Europe’s trump card – its significant purchasing power, allowing it to pay more for energy than many other markets – remains a key asset that can once again come into play if circumstances turn sour.
Editor's note: This article was amended on 02 March 2023 to add the comment from GlobalData analyst Tosin Coker.
