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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Europe Looks To Fill Storage As It Braces For Permanent Halt Of Russian Gas

  • Reduced gas flows via the Nord Stream 1 pipeline have further complicated the plan to fill gas storage units across Europe.
  • The goal of the European Union as a whole is to replenish its gas storage to 80 percent full by the end of October.
  • Even at lower import rates, most of the EU member states will amass enough gas for this winter.

When Gazprom suspended the flow of gas earlier this month via the Nord Stream 1 pipeline, the European Union—and Germany, specifically—braced for a permanent halt in that flow. The deterioration in relations between Brussels, Berlin, and Moscow made such a halt a distinct possibility, but Gazprom restarted the flow of gas following the end of planned maintenance on July 21.

Days later, it said it would reduce these flows to 20 percent of capacity. Meanwhile, the EU is trying to fill its gas storage ahead of winter. It may fail to reach the levels it needs to go through the winter without more price and supply shocks.

The goal of the European Union as a whole is to replenish its gas storage to 80 percent full by the end of October, Reuters noted in a recent analysis, citing data from Gas Infrastructure Europe. Germany is more ambitious, eyeing a storage fill level of 95 percent at the end of October.

According to Wood Mackenzie analysts, if Gazprom continues sending gas to Germany at current rates via Nord Stream 1, the EU's overall goal could be reached. Germany's, however, could not.

The analysts said that at 20 percent of capacity, the Nord Stream 1 pipeline could help the EU reach a storage fill level of between 75 and 80 percent. However, this would leave the EU with little gas at the end of the heating season, one Wood Mac analyst pointed out.

"As a result, Europe is likely to get through the heating season with only 20% gas in store at the end of March – a very low level," Kateryna Filippenko told Reuters.

Meanwhile, gas storage levels across the EU were at close to 60 percent as of late June, thanks to higher than usual injection rates earlier in the year, as U.S. exports of liquefied natural gas surged to all-time highs.

The latest export data shows that the United States supplied more LNG to Europe in the first half of this year than it did through the whole of 2021, Reuters reported this month. Europe overtook Asia as the biggest buyer of U.S. liquefied natural gas early on in the year and continued to be the biggest buyer.

Related: SEC Investigates Coinbase Over Securities Listings

In absolute terms, U.S. liquefied natural gas exports to Europe stood at 37 billion cu m for the first six months of the year, constituting 68 percent of total U.S. exports of LNG. This means actual exports beat President Biden's promise to send Europe's way an additional 15 billion cu m of LNG on top of 2021 exports. 

The bad news is that the rate of exports to Europe has slowed down because of the explosion at Freeport LNG, which led to the suspension of operations at the facility until about the end of the year. Freeport LNG accounts for about a fifth of U.S. liquefaction capacity.

Even at lower rates, most of the European Union seems like it will amass enough gas to last it through the winter, especially now that the member states of the bloc agreed a voluntary 15-percent reduction in gas consumption.

Germany, however, is facing a problematic heating season. Europe's biggest economy is already sputtering because of lower Russian gas deliveries and has already had to pay more than $15 billion to bail out one of its biggest gas utilities, Uniper, which collapsed amid soaring prices and lower Russian deliveries.

The EU also agreed to a solidarity mechanism earlier this week, which is supposed to take care of those members experiencing gas shortages, spurring others into action to help the unfortunate fellow member.

If gas supplies remain tight throughout the EU, however, there may not be many coming to Germany's rescue, based on some southern members' reactions to the whole solidarity and consumption cut proposal.

"The entire European energy system is going through a crisis, and even with the restart of Nord Stream 1, the region is in a tight position with continued risk to energy security," Reuters quoted Rystad Energy analyst Karolina Siemieniuk as saying.

"European countries will need to work together fast if they are to survive the winter relatively unscathed and even if they do, the spectre of the next winter in 2023/24 is likely to keep prices elevated for months on end," Siemieniuk added.

Unfortunately, the only thing that European countries can work together on is demand reduction because there is no additional LNG capacity coming to a terminal near them anytime soon. U.S. capacity will rise this year, as Venture Global's Calcasieu Pass puts into operation new liquefaction units but that increase would only be about 200 million cu ft daily.

Next year should bring some more good news for European LNG importers when U.S. capacity increases from a total 13.8 billion cu ft daily this year to 14.2 billion cu ft daily. But first, they must survive this winter without inflicting too much pain for voters.

By Irina Slav for Oilprice.com

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Leave a comment
  • Zero Ghost on July 28 2022 said:
    Europe have to brace? You mean the morons that put the population in artificial inflation just to wave its tail like fkin dog to USA machinations... No these morons won't have to brace.. It is us the population that will have to tighten our belts.. The politician pigs will be again drinking pinacolada on the Bahamas without care.
  • Mamdouh Salameh on July 28 2022 said:
    The dilemma facing the EU is that at current levels of reduced Russian gas supplies, the EU will never be able to fill its gas storage even by half by November 2022 despite a voluntary 15% reduction of consumption. However, if Russia does halt supplies, then the Europeans will probably freeze this winter if it is a harsh one.

    Meanwhile, gas prices would be headed to the stratosphere and could reach a level beyond the affordability for many industrial users in Europe. This will bring the EU economy to the brink of collapse if not total collapse.

    And with no replacement for Russian gas supplies and no alternative sources either, the EU may have no alternative but to reach a rapprochement with Russia and this means lifting the sanctions in exchange for plentiful and cheap supplies of Russian gas.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment




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