Europe may not have enough natural gas to meet demand in a cold winter, especially if Asia’s winter is cold too, unless Russian gas deliveries to European customers are increased, energy consultancy Wood Mackenzie said on Friday.
There is a risk that European storage levels could drop to zero in case of colder-than-usual temperatures in the northern hemisphere.
“With only 29 bcm of gas in storage, there is a risk storage levels could drop to zero. If this plays out, Europe would be wholly dependent on Russian flows above existing capacity,” said Massimo Di Odoardo, Vice President, Gas and LNG Research, at WoodMac.
Weather will be the crucial factor in determining the demand and prices of natural gas over the next few months, analysts say.
According to Wood Mackenzie’s Di Odoardo, under normal winter weather conditions, Europe will not have a problem with meeting its winter demand, despite the low storage levels going into the heating season.
However, a colder winter in Europe, Russia, and Asia will boost demand so much that Europe will not be able to compete with Asia for incremental liquefied natural gas (LNG) cargoes. At the same time, Russia’s gas giant Gazprom could have limited capability to increase supply to Europe as it will first cater for the domestic market, Di Odoardo noted.
“A cold winter in both Europe and Asia would risk European storage levels dropping to zero, leaving Europe dependent on timely approval of Nord Stream 2 or Russian willingness to ship more gas through Ukraine if it is to avoid demand curtailments,” he added.
“The sky could be the limit for European gas prices this winter,” Di Odoardo said.
Gazprom is on track to have filled Russia’s underground gas storage by the end of this month, a senior executive said on Thursday, which could potentially mean that the Russian gas giant could send more gas to Europe after that.
The Russian gas monopoly, a major supplier to Europe, has been accused in recent weeks of deliberately withholding additional supply to its customers, thus exacerbating the natural gas crunch and sending prices to record highs.
Earlier this week, Russian President Vladimir Putin suggested that Gazprom could send more gas to Europe.
By Tsvetana Paraskova for Oilprice.com
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