Please ensure Javascript is enabled for purposes ofwebsite accessibilityEurope's natural gas glut unlikely to bring long-term price relief

Europe's natural gas glut unlikely to bring long-term price relief


FILE - The tanker Sun Arrows loads its cargo of liquefied natural gas from the Sakhalin-2 project in the port of Prigorodnoye, Russia, Oct. 29, 2021. (AP Photo/File)
FILE - The tanker Sun Arrows loads its cargo of liquefied natural gas from the Sakhalin-2 project in the port of Prigorodnoye, Russia, Oct. 29, 2021. (AP Photo/File)
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Europe is dealing with a glut of natural gas after concerns about an energy crisis due to the fallout of the war in Ukraine prompted a purchasing and export spree as the region tried to stock up supplies to make it through the winter.

The price of energy has skyrocketed after Russia’s invasion of Ukraine and the resulting sanctions that cut off a key supplier to Europe, creating a pressure pinch on a supply that was already limited due to complications from the pandemic. Russia had supplied the European Union with about 40% of its natural gas supply last year, which created a significant void to fill as winter approaches.

The EU started building its reserves after Russia reduced its supply to the bloc with a goal of reaching 80% capacity by November. Companies and people were also encouraged to reduce energy usage where possible to help supply last.

A mass rush of liquefied natural gas to Europe has filled reserves over 90% with reports of ships filled with more natural being stuck on the coast due to a lack of space to store more. There has also been less energy consumption than expected due to warmer than average temperatures that mean few people are using energy to heat their homes.

Healthy reserves will help Europe blunt the worst effects of the dwindling supply from Russia for now, but it won’t be a long-term fix.

When temperatures start dropping again, demand will increase as residential and commercial demand for heating will increase, and the region will still be in a complicated situation because of the drop of Russian pipeline gas.

“Concerns about the gas crisis should still be on everyone's minds. What this episode does is reducing the overall gas demand during winter, so all other things being equal on the demand and supply side, this is putting us in a slightly better situation,” said Anne-Sophie Corbeau, global research scholar at Columbia University’s Center on Global Energy Policy. “But thinking that ‘low prices are here to stay,’ and that we are fine is wrong. We still need to insist on saving energy (both gas and power).”

Prices are still well above historical norms even with the recent decline from the glut in shipments. A sudden rush of cold weather could also bring more demand for power that would reduce the supply currently being stocked up.

Policymakers still have to figure out how to navigate through the time it takes to permanently diversify its energy sources without reliance on Russia, whether through natural gas imports or other technologies.

What happens with demand from Asia, where China has not been as big of a consumer as its economy slumps due to coronavirus-related issues and shutdowns, will also impact the energy landscape moving forward.

“Europe still needs to attract a lot of (liquefied natural gas.) The question is rather - will Asian LNG demand remain muted, and Asian players happy to see a lot of the LNG going to Europe? China has been active in terms of LNG contracting and many countries have a significant residential demand,” Corbeau said.

In the U.S., the cost of natural gas is also elevated as producers export fuel to Europe to help fill the void, though still much lower than prices in Europe.

The cost of heating a home is expected to jump by 17.2% this winter and cost $1,202, according to the National Energy Assistance Directors’ Association. Home energy prices are also expected to increase by over 35% between 2020 and 2023, which would be the highest prices in more than a decade.

The U.S. Energy Information Administration said earlier this month that American households that primarily use natural gas for heating will spend 28% more than last year.

Energy Secretary Jennifer Granholm has previously requested producers slow down exports to prioritize U.S. markets. Experts say the effect of that strategy would be limited because energy supplies are traded on a global scale.

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