Nearly five months of war in the Middle East is complicating an already difficult annual rite in Europe: stocking up on energy for the cold months of winter.
Storage facilities for natural gas, which households and businesses use extensively for boilers and furnaces, are only 54 per cent full. That’s the second-lowest level for summer since 2011, and the lowest for July since 2021, when Russia’s state-owned energy company was restricting gas supplies to Europe.
At the same time, continued air strikes by the United States and Iran, and their effective blockade of the Strait of Hormuz, have slowed energy shipments out of the Gulf. That has also complicated efforts in Europe to replenish storage.
“It’s quite a worrying situation,” said Chris Aylett, a research fellow in the Environment and Society Centre at Chatham House, a think tank in London. “When you look at the situation in the [Strait of] Hormuz, you just don’t have a sense of how this gets resolved,” he added.
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The likely consequence for Europe, say experts, will not be outright shortages of gas. Instead, the restricted supplies will keep prices high.
Iran has essentially choked off the strait, a vital waterway for oil and gas shipments, since the United States and Israel launched strikes on February 28th. Conditions for tankers in the region remain perilous, and Iranian damage to the energy infrastructure of Qatar, a large producer, has left lasting scars on the world’s supply of natural gas.
The wholesale price for European natural gas soared in June to €60 per megawatt-hour, the highest it has been since the war with Iran began, and has continued to hover around that level. Without a lasting resolution to the war, said analysts, Europe will be forced to keep paying higher prices to fill its natural gas storage sites, costs that will trickle down to utility bills.
Before the war, about one-fifth of the world’s liquefied natural gas flowed through the strait, primarily from Qatar. Little of that gas is now getting into markets.
“This will be felt by all LNG importers, including Europe as it looks to refill its gas storage for next winter,” said Fatih Birol, executive director of the International Energy Agency, in the organisation’s monthly oil report on July 21st.
Securing gas reserves has become a critical challenge for Europe in recent years. After Russia’s invasion of Ukraine in 2022, the European Union and its allies replaced Russian pipeline gas with liquefied natural gas, primarily imported from the United States. To maintain energy stability, the European Union enforces seasonal regulations that require member states to meet storage benchmarks throughout the year.
By November, a few months before the war in Iran, average gas storage across EU member states was 75 to 80 per cent – falling short of the 90 per cent government target at the time.
As Europe grapples with supply disruptions from the war in Iran, it is also being hit by the costly effects of global warming. This year, the challenge has been particularly acute as heatwaves across the Continent, fuelled by rising global temperatures, have increased electricity demand for air-conditioning.
In France, the heat even forced some nuclear reactors to curb production, which meant an increased reliance on gas-fired power plants.
Europe is also competing for gas with Asia, where above-normal temperatures are also driving up demand.
Most of Europe’s gas is consumed during winter. So countries try to keep storage levels high throughout the summer months to avoid paying peak prices in the coldest months.
The European Commission eased storage rules this year, allowing member states to target at least 80 per cent of capacity by early November under difficult market conditions.
Some experts and industry officials are worried that Europe will not be able to meet the lower threshold.
“We do not believe that Europe will get to 80 per cent storage filling before the winter,” said Torgrim Reitan, chief financial officer at Equinor, a Norwegian energy giant.
Still, the Continent is not in danger of running out of gas, according to the Energy Union Task Force, a coalition of European countries and commission members who co-ordinate energy policy. Natural gas prices are “significantly lower” than 2022 levels.
“There is no immediate security of supply concern for winter,” said taskforce members.
Christoph Halser, a senior analyst at Rystad Energy, a consulting group, noted that Europe was in a better position than other parts of the world, particularly gas-dependent parts of Asia. That’s because significant new liquefied natural gas export capacity from the United States is coming online, buffering the loss from Qatar.
Another factor weighing on the urgency to fill reserves is a looming reduction in about 12 per cent of Europe’s gas supply. In less than six months, European countries will by law have to end imports of Russian liquefied gas, increasing the need to bring in more cargoes from the United States and other countries.
– This article originally appeared in The New York Times
