Europe’s Race to Secure New Energy Sources Is on a Knife’s Edge

Europe is looking for energy everywhere to sustain its economy as Russia tightens its supply of natural gas. Coal-fired power plants are back. Billions of dollars have been spent on terminals to bring in liquefied natural gas, much from Page Iwata, Texas. Officials and heads of state are flying to Qatar, Azerbaijan, Norway and Algeria to finalize energy transactions.

Across Europe, there is growing concern that Russia’s gas outage could endanger thousands of jobs by forcing governments to distribute fuel and companies to close factories.

So far, the fuel search has been quite successful. However, error margins are thin as prices continue to rise and show no signs of weakening Russia’s threat.

Michael Stoppard, Vice President of Global Gas Strategy at S & P Global, a research firm, said:

Five months after Russia’s invasion of Ukraine, Europe is on the verge of an accelerating and increasingly irreversible transition in the way homes are heated and cooled, business is driven and generated. The long-term switch to more renewable energy sources has been overtaken by short-term scrambling to survive the coming winter.

Once the largest source of fuel in Europe, the amount of natural gas from Russia is less than one-third that of a year ago. This week, Russian energy giant Gazprom has pushed European gas futures prices to record levels, curbing already significantly reduced flows in its major pipeline from Russia to Germany.

Within a day of Gazprom’s announcement, the European Union called for a 15% reduction in gas usage across the block.

This move from Russian natural gas is almost unthinkable after decades of accepting Siberian gas supplied through thousands of miles of pipelines, sending shockwaves to factory floors. , Forces the government to look for alternative energy sources.

Multifaceted efforts to find alternatives to Russian gas have largely filled the shortfall. According to Jack Sharples, a fellow at the Oxford Energy Institute, the supply of natural gas in Europe in the first half of 2022 was about the same as that of the same period last year, despite the reduction in gazprom.

The outstanding performer at this comeback was liquefied natural gas, cooled in the form of a condensed liquid and shipped by ship. LNG has basically switched locations with pipe gas from Russia as Europe’s main fuel source. About half of the supply comes from the United States, and this year it came from the United States. The world’s largest exporter of fuel.

Towards the end of the year, European countries are urging energy companies to fill salt caves and other storage facilities With gas To provide a safety margin in case Russia closes the pipeline.

European gas storage now accounts for about 67% of total capacity, more than 10% higher than it was a year ago. These levels create some comfort that European countries may reach something close to the European Union’s goal of filling up before winter.

However, concerns remain high and there are many reasons why Europe’s efforts may become inadequate as cold weather approaches.

Russia is familiar with the European Union’s campaign to store enough gas to fend off this winter’s cutoff and wants to stop it by reducing pipeline flow, analysts say.And all kinds of weather problems — very cold winters, North Sea storms Europe could run out of energy as the Atlantic hurricane season, which knocks out Norwegian gas production and delays LNG tankers, is busy.

“We are approaching a danger zone,” said Massi Modio Doord, vice president of gas at the research institute Wood Mackenzie.

Reflecting these concerns, European gas futures prices have doubled in the last two months to around € 200 per megawatt hour on the Dutch TTF exchange, about 10 times more than a year ago.

The astronomical costs of energy in Europe have forced changes that could help put various industries in defense and help the European Union achieve its voluntary 15% gas savings target. The International Energy Agency recently predicted that gas demand in the region would decline by 9% this year.

For example, the ArcelorMittal-owned steel mill in the bustling port of Hamburg, Germany, has used natural gas for many years to extract iron and put it in an electric furnace. But recently, we’ve started buying factory metal inputs from our sister factories in Canada, where cheaper energy is available. Natural gas prices in North America have risen by historical standards, but are about one-seventh of those in Europe.

“Natural gas is so costly that it cannot be operated in the usual way,” said Uwe Braun, CEO of Arcelor Mittal Hamburg.

Few analysts or executives expect the situation to ease in the coming months. Instead, winter may prove to be a pain for energy-intensive industries such as metal smelters and manufacturers of fertilizers and glass under pressure.

News of factory closures and production cuts are already flowing. In Romania, the ALRO Group recently announced that it would shut down production at a large aluminum plant and fire 500 people due to its uncompetitiveness due to high energy costs.

In some countries, including the UK and Germany, energy companies have not yet fully passed on these costs to their customers, so the biggest blow has yet to come.

Henning Groystein, director of the Eurasia Group, a political risk company, said:

Liquefied natural gas shipments are the primary alternative to pipe-in ​​gas from Russia in most parts of the continent and remain a costly alternative. And Europe’s growing desire for LNG may be hurting other parts of the world that depend on fuel.

Europe has basically bid for liquefied gas from other markets, centered on Asia, where China, Japan and South Korea are its main customers. Ben van Baden, CEO of LNG provider Shell, told reporters Thursday. “It’s a very unpleasant position.”

Countries such as Germany and Romania have also taken other steps, such as: Revive a coal-fired power plant or delay its retirement. The idea is to minimize the amount of gas used to generate electricity in a power plant and save it for necessities such as home heating and factory operation. Thursday International Energy Agency Global coal demand this year is projected to reach about 9 billion tonnes, comparable to its 2013 peak.

Many uncertainties remain. Europe has about 20 terminals for accepting liquefied natural gas, but Germany does not. Berlin is struggling to build four of these facilities, securing € 2.5 billion ($ 2.55 billion) to rent four LNG processing vessels, but fast enough this winter. It’s not clear if it will be online.

Not only Europe, but also the weather can be important.Asia’s frigid winter, the main market for liquefied gas, will intensify competition with Europe Analysts say it’s a limited global supply of LNG

It is also difficult to know where else the significant increase in gas comes from. “If Russia loses its supply altogether, there isn’t much room to increase supply from elsewhere,” said Sharples of the Oxford Institute.

There are other wildcards as well. Until the gas crisis, the Dutch government kept the huge Groningen oil field in the north of the Netherlands (one of the few major sources of natural gas in mainland Europe) due to local anger at the earthquake caused by gas extraction. I made a plan to close.

Some observers have decided to awaken what S & P Global’s Stoppard called a “sleeping giant” who could bring very large amounts of gas (perhaps 40% of Germany’s annual consumption) back to the grid. Is still questioning that he is reluctant.

The Dutch government has decided to postpone the permanent closure of gas wells due to “uncertain geopolitical progress”, but “worst if people’s safety is at stake. It claims to consider the use of Groningen only “in the scenario”.

This stance may be tested in the coming months.

Melissa Eddie Contribution report.