The latest proof that the EU is successful in reducing its reliance on Russian energy since Moscow’s full-scale invasion of Ukraine is that EU members reduced their gas use by a quarter in November despite temperatures falling.
According to preliminary statistics from commodity analytics firm ICIS, gas consumption in the EU fell by a similar amount in October and was 24% below the five-year average last month. By seeking substitute sources or altering demand, European nations have been attempting to reduce their dependency on Russian gas and oil.
Although temperatures have dipped closer to normal levels over the last two weeks, they have benefited from an uncharacteristically mild autumn. The two EU nations with the highest gas consumption rates, Germany and Italy, had declines in demand in November of 23 and 21%, respectively. It decreased by more than a fifth in France and Spain and by just over a third in the Netherlands.
“Industry is proportionally driving the biggest reductions in gas consumption, and this is entirely the result of clear market pricing,” said Analyst Tom Marzec-Manser. He said that the high cost of gas has “disincentivised” use. In 2021, the EU imported 155 billion cubic meters of natural gas from Russia, making up about 40% of its total gas consumption and about 45% of its gas imports.
In order to restrict Russia’s use of that energy source as well, Europe has also put sweeping new limitations on the country’s oil exports.
On Monday, the EU’s ban on importing Russian oil by sea went into effect. Meanwhile, G7 leaders have decided to implement a “price cap” that aims to maintain Russian oil flow to nations like India and China in order to prevent widespread shortages, but only if the crude is sold for less than $60 per barrel in order to reduce Moscow’s profits.
However, industry leaders and analysts have cautioned that without further falls in demand and more LNG imports, Europe may experience long-term gas shortages.
“Demand will need to be lower than pre [Russia-Ukraine] war levels to get enough inventory” for next winter, said Alex Tuckett, head of economics at consultancy CRU Group. “The question is, how much demand reduction, and how painful it will be.”
According to industry group Gas Infrastructure Europe, the EU’s gas storage facilities were at 95 percent capacity in mid-November due to the decline in demand, which was close to an all-time high. Record LNG imports into the area were also beneficial. However, the recent colder weather has increased demand, and storage facilities are currently at roughly 93% of their capacity.
Prices have increased at the same time. The benchmark European contract for gas, Dutch TTF gas futures, are currently trading near €150 per megawatt hour, which is the highest price in more than a month but still less than half of the €300/MWh they briefly attained in August.
While higher gas costs are a burden for individuals and businesses, the premium that Europe pays above other purchasers has allowed it to draw record amounts of LNG. According to ICIS data, Europe and the UK received a record-breaking monthly high of 11.14 million tonnes of LNG imports in November and are on track to receive 12.2 million tonnes in December. Regarding the cap on gas prices in Europe, Marzec-Manser added a word of caution.
“move to cap wholesale gas prices could jeopardise Europe’s ability to secure [LNG] supply, not just this winter, but for next winter and beyond,” he said. “If Europe [is] not the premium global gas market it would lead to a reduction in imported cargoes at a time when they are needed most.”
Pan Finance is a print journal and news website providing worldwide intelligence on finance, economics and global commerce. Known for our in-depth analysis and opinion pieces from esteemed academics and celebrated professionals; our readership consists of senior decision makers from across the globe.