Key facts
- The EU faces a potential natural gas shortage this winter, with reserves at their lowest level since 2011.
- A shortfall of up to 14 billion cubic meters of natural gas is projected.
- This shortfall is equivalent to the energy used by 10 to 12 million European households.
- Gas reserves are currently just above 70%, the lowest for this time of year since records began in 2011.
- An EU-wide ban on long-term Russian LNG supply contracts will take effect in January, reducing imports by 7 billion cubic meters.
- Restoring reserves to 30% by winter's end may require curtailing or withholding 7% of demand.
The European Union is facing a potential natural gas shortage this winter, with reserves at their lowest level since records began in 2011, according to new reports. The bloc could be left scrambling to replace lost energy supplies equivalent to the power used by 12 million homes.
The shortfall raises the prospect of soaring power bills and forced energy saving measures if the EU fails to secure adequate supplies. The Institution for Energy Economics and Financial Analysis (IEEFA) estimates the EU faces an overall shortfall this winter of up to 14 billion cubic meters of natural gas, around 7% of the bloc's demand.
These conclusions are echoed by a report from the European Network of Transmission System Operators for Gas (ENTSO-G), an association of gas network operators. Natural gas is widely used for heating, industry, and electricity generation in Europe. However, high prices made it more attractive for traders to sell gas in the summer rather than store it, leading to reserves falling to just above 70%.
With gas prices at near four-year highs and supply constrained due to ongoing conflicts, Europe has limited options if the winter proves cold. IEEFA found that there could be 7 billion fewer cubic meters of stored gas available. This could force countries to buy gas at high prices on volatile global markets or require consumers to cut demand.
Ana Jaller-Makarewicz, IEEFA's lead European energy analyst, stated that the EU's record-low reserves leave the bloc "with less of a buffer" against global supply disruptions, making it "vulnerable to price spikes." She added that if countries exhaust stocks this year, they will have more to refill next year, perpetuating a cycle of low reserves and higher prices.
The ENTSO-G report warns that in a tight market scenario with limited liquefied natural gas (LNG) imports, storage levels could fall as low as 11%. To restore reserves to 30% by the end of winter, volumes equivalent to 7% of demand may need to be curtailed or withheld from consumers.
Adding to the pressure, an EU-wide ban on long-term Russian LNG supply contracts is set to take effect in January, which will reduce European gas imports by an additional 7 billion cubic meters, according to IEEFA. Russian gas has historically been used to offset demand swings during winter.
Gas demand over winter has increased in the past two years while imports have flatlined, leading the EU to rely more heavily on its reserves. Net drawdowns in January rose to 22.6 billion cubic meters this year, up from previous years. Importing the lost volumes via LNG would cost an additional €3 billion, a 12% increase over last year's costs, on top of already high prices. U.S. LNG production is also near full capacity, which could further squeeze supply.
Laurent Ruseckas, a senior gas market analyst at S&P Global Energy, argues that prices will likely rise to draw LNG cargoes from Asia to Europe, as demand destruction from the war in Ukraine has already reduced industrial demand by 20%.