Europe’s natural gas crisis isn't letting up. Reserves are low. Prices are high. Utility customers are getting hit with higher bills. Major Russian supplier Gazprom isn't selling gas like it used to.
Utilities turn to gas stored in underground caverns to handle sudden additional demand for gas for heating or electricity. But Europe started 2020 with gas storage only 56% full, compared with 73% a year earlier. The reasons vary: cold weather last winter, lack of Russian deliveries on the spot market and robust demand in Asia for liquid natural gas that comes by ship. Europe's association of pipeline operators says cold weather would mean needing to import 5% to 10% more gas than the maximum volumes observed in recent years to avoid the risk of shutoffs.
The benchmark price in Europe is around 80 euros per megawatt hour, more than four times its level of 19 euros at the start of 2021 and up from as low as 4 euros in 2020. Prices have eased from as much as nine times their level at the start of last year. That price shock is feeding through to utility bills, alarming consumers and politicians.
Analysts at Rystad Energy used ship-tracking data last month to watch 11 tankers bringing liquid natural gas, or LNG, to Asia make U-turns in the middle of the ocean to take advantage of lucrative sales in Europe. With prices so high, traders were tempted to divert cargoes to Europe even if they had to offer 100% of the price as compensation, analysts at data firm Energy Intelligence said.
“I wouldn't say that LNG is 100% enough, but it will play a very important role" in Europe's energy solution, said Xi Nan, head of liquid natural gas markets at Rystad. But she added a caveat: “Depending on how much Europe is willing to pay.”