Rising Gas Prices and Uncertainty Dominate Europe’s Winter Energy Outlook
Europe faces rising natural gas prices and growing uncertainty over energy supplies as it heads into its third winter since Russia’s invasion of Ukraine.
Although gas reserves currently appear sufficient, concerns persist. Dr. Yousef Alshammari, President of the London College of Energy Economics, told Euronews Business: “Uncertainty oversupply continues to dominate the markets despite the availability of sufficient gas reserves.” He noted that EU gas storage levels, which reached 90% capacity by August, now stand at 95%, exceeding 100 billion cubic meters.
However, early demand for heating and electricity driven by cold November temperatures has already tested reserves.
Increased Demand Strains Storage
Gas withdrawals in Europe reached 4.29 billion cubic meters in the first two weeks of November, nearly 4% of full storage capacity, according to Gas Infrastructure Europe. Alshammari predicts storage levels will dip significantly by spring 2025 compared to April 2024, when reserves were at 60%. “This winter, reserves could fall below 50%, forcing Europe to purchase more gas next year. Combined with colder weather, this will likely keep prices higher compared to last year’s relatively mild winter,” he said.
Geopolitical Tensions and Supply Risks
Geopolitical tensions, particularly between the US and Russia, remain a significant risk to Europe’s energy market. Alshammari suggested that while tensions could ease under a new US administration, current complexities are heightening market volatility. Natural gas prices hit a one-year high recently, exacerbated by Russia’s Gazprom halting supplies to Austria on November 16 amid a bilateral dispute.
Further concerns loom as a key transit agreement for Russian gas via Ukraine is set to expire on January 1, 2025. This could remove half of Russia’s pipeline gas exports to the EU during peak demand. “Any additional disruptions in Russian gas supplies would strain EU storage and push prices higher,” Alshammari warned, adding that such disruptions could drive a return to coal and oil in power generation, with broader impacts on energy markets.
As Russian pipeline gas diminishes, Europe may turn to increased LNG imports, which could further escalate energy costs.
Long-Term Solutions: Nuclear and Renewables
Alshammari emphasized the potential role of nuclear energy in reducing reliance on foreign LNG imports. “Nuclear energy trading among EU countries could diversify the mix and stabilize prices in the long term,” he said.
Despite progress in renewables and efficiency, Europe cannot solely depend on green energy to meet demand. Gas consumption has fallen from 350 billion cubic meters in 2022 to 295 bcm in 2023, with a further 3.2% drop in the first half of 2024. This decline is attributed to increased renewable capacity and efficiency measures.
Renewables now contribute 44.7% to EU electricity production, up 12.4% from 2022, while fossil fuel reliance has dropped to 32.5%. Yet Alshammari cautioned that renewables alone cannot prevent energy crises or price spikes. Countries like Austria, Norway, and Iceland benefit from hydropower, but other nations require diversified energy strategies.
“Improving energy efficiency, diversifying the energy mix, and leveraging nuclear power will be essential,” Alshammari concluded, citing Germany’s efficiency measures, France’s reactivated nuclear plants, and a resurgence of coal as pivotal during Europe’s recent energy crises. Nuclear accounted for 22.8% of EU energy production in 2023, underscoring its importance in stabilizing the energy landscape.