Gas independence from the Kremlin?: Europe is swimming in LNG

Gas independence from the Kremlin?
Europe swims in LNG

By Hannes Vogel

The turning point is progressing: despite Russia’s delivery freeze, Europe is not experiencing a gas doldrums, but an abundance. But there is no reason to sigh. Because China in particular could still throw a spanner in the works.

Who would have thought a year ago that Europe would have too much gas instead of too little? But that’s the current situation: The EU’s storage facilities are currently being filled at such a record pace that some decision-makers in Brussels already believe that the end of dependence on Russia has come.

According to the industry association Gas Infrastructure Europe, in which the storage operators of the EU countries have organized themselves, the storage level in the EU countries was around 56 percent at the end of March. That’s the highest level for this time of year since at least 2011. And almost 30 percent up from the same time a year ago.

So the frugality of consumers and the construction of new LNG terminals has paid off. Germany in particular is doing well: In Germany, the storage facilities, which are the largest in the entire EU at around 250 terawatt hours, are still 64 percent full. Only in Denmark (72.3 percent), Croatia (75.6 percent), Bulgaria (77.5 percent), Spain (78.2 percent) and Portugal (95.5 percent) does it look even better.

“It looks like Europe is more likely to have too much gas this summer than the other way around,” Natasha Fielding of data provider Argus Media told the Financial Times (FT). In response to Putin’s invasion of Ukraine, the EU has set itself the goal of having gas storage tanks 90 percent full by the onset of winter. According to Fielding, she could now reach that goal as early as July or August.

Putin’s work and Biden’s contribution

The bureaucrats in Brussels are already jumping for joy: “The EU’s gas storage facilities are more than half full, which is why we are ending this heating season in a comfortable position,” said EU Energy Commissioner Kadri Simson of the FT. “By ramping up the share of renewables and further diversifying our supply sources, a complete shift away from Russian liquefied natural gas (LNG) will become possible for some member states.”

The current gas glut is the result of cold turkey from Moscow. The only irony is that despite the delivery stops, Europe is still dependent on the Kremlin’s drip. Ever since Putin shut down his pipelines to the West, Europe has simply been importing Russian gas in a different way: in liquid form, as LNG. According to the data provider Refinitiv, the EU’s Russian LNG imports rose drastically last year by almost 40 percent despite the Ukraine war.

Dependence on Moscow has more than halved overall since the forced switch to Russian liquid gas: According to Eurostat, in 2022 only a little more than a fifth of all EU gas imports (pipeline and LNG) came from Russia – and no longer more than two fifths as before Beginning of the Ukraine war. A quarter came from Norway, another quarter from the USA and Qatar. However, Moscow’s contribution is still too large to be fully replaced this year. Accordingly, the EU is only planning this for 2027.

Exactly when the EU will make the jump depends primarily on how quickly it can expand liquefied gas imports from the USA. These have more than doubled in the past year. The question is whether this will continue. Because with the current abundance in the gas market, there is one big unknown: China.

What matters is what happens next winter

The economy of the People’s Republic is just waking up from the long forced break that it has imposed on itself with its zero-Covid policy. Depending on how quickly and how violently she opens her eyes, the rising demand in the Far East could quickly wipe out the gas market in Europe again.

The concern can already be seen in the gas price. On the spot market, prices have fallen significantly due to the gas glut. But the situation is different with the futures: According to FT, the standard contract for delivery in the fourth quarter has become about 20 percent more expensive in the past month and is currently around 55 euros per megawatt hour. In 2019 – before the corona pandemic and Putin’s attack on Ukraine – the annual average was just 14.60 euros.

It will be exciting from autumn: That is when the importers fill their warehouses for the winter and the competition for LNG cargoes is likely to increase noticeably worldwide. In 2022, despite Putin’s blackmail attempt, Europe got off with a black eye. “In 2023,” the French research institute IFRI recently wrote, “the European gas situation will be much more fragile. The smallest supply disruptions can have far-reaching consequences.”

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