While the measures taken to secure gas supplies this winter in the EU have been successful, there is a need to maintain this momentum in the long term. Gas demand is expected to remain strong in the coming years, and diversifying supplies seems the only strategy for Europe to provide itself with sufficient energy stock.
After the gas supply scare that gripped Europe last winter, the continent’s energy landscape is looking notably more secure this season. A combination of proactive measures taken by governments and the emergence of new gas sources has significantly bolstered Europe’s gas reserves, reassuring consumers and businesses alike.
“This is the second winter that Europe is experiencing without Russian gas,” said Kim Fustier, HSBC Holdings Plc head of European oil & gas research. “The fact that there is now a precedent — the 2022-2023 winter that went without any issues — is helping to calm traders’ nerves.”
“There is now a significant potential” for the EU to ditch Russian LNG supplies, believes Ben McWilliams, affiliate fellow at the think-tank Bruegel. The union’s countries are rushing into action to reduce dependence on Russian gas, and, consequently, the bloc is expected to increase LNG supplies from other regions over the next two years. The current situation shows that the balances in the natural gas markets are shifting, thanks to not only the adopted legislative measures, but to new sources as well. The latter are diverse and abundant, but the question with them hasn’t been finalized yet.
Diversifying Supply Routes
A key factor in Europe’s improved gas security is the diversification of its supply routes, with the US gripping the role of the region’s largest supplier. America’s booming shipments today account for about half of the region’s LNG imports, a share that is widely expected to grow further. And when considering gas shipped through pipelines as well, the US is the bloc’s second-largest supplier after its neighbor Norway.
At the same time, Europe is now wary of over-relying on a single supplier. Although the European Commission seems not to be concerned much about a growing dependency on the US or Norwegian LNG with regards to political risks, other dangers still remain: take, for instance, the Biden administration just now delaying consideration of new LNG export terminals in the United States, or gas prices soaring across Europe after summer outages at three major Norwegian facilities. A first harbinger of an undersupply disaster, the German industrial crisis caused by energy costs skyrocketing in 2022, has brought less consequences than expected – but still left the EU thinking that putting all eggs in one basket isn’t the best strategy, and that the search for new LNG suppliers must go on.
Existing and prospective sources
Russia may possess four of top ten largest natural gas fields by production, but there’s still plenty of fish in the sea when it comes to natural gas-producing states. The market offers are geographically diverse, and a buyer as large as the European Union is sure to find new suppliers, for now and for future.
Here’s for instance, Qatar, a long-known seller of fossil fuels around the world. The state sits in the top current LNG suppliers to Europe, and is now considered as one of its main partners: “In Europe, we have live discussions that are ongoing that are quite serious. More serious in some places than others,” Saad al-Kaabi, the Qatar state minister for energy, said.
This cooperation stems from well-established reputation of the supplier – and also from prospects of steady flows of the resource in the future. Recently, state-owned QatarEnergy has signed several supply deals for its massive North Field expansion project, which is expected to produce 126 million metric tons of LNG per annum by 2027, with ongoing prospecting in search for new reserves: “If we think there is more capacity, we’ll probably do more,” al-Kaabi told.
Expectations of new supplies affect not only the work with established sellers, but considerations of new ones as well. So, now analysts are monitoring Mozambique LNG Project, under development by a consortium of European and Asian companies led by French TotalEnergies SE. The project, one of the largest in Africa by expected production capacity, will likely resume work early this year after a near-three-year freeze due to Islamic State-linked militants’ raids in the country. Once its doors are open, the global natural gas market will receive a new player with 65 trillion cubic feet of recoverable natural gas waiting in stock. A part of this reserve has already been earmarked for Europe by Britain’s Centrica and Electricité de France SA having signed long-term deals to buy much of the plant’s output, and for rapidly growing Asian demand with the latest contract for a supply of 1 million tons of LNG for India.
Other local sites are progressing as well: a group headed by Exxon Mobil Corp. aims to build a similar facility, designed to produce more gas than anticipated before the attacks. Together the two projects could produce up to 31 million tons of LNG annually, about a third of the European Union’s imports last year—making the region an important new source for its intercontinental neighbors.
Long-term considerations
The current situation with energy reserves for the EU offers a sense of relief, but the union isn’t going to celebrate it yet. The bloc has set ambitious targets for reducing its reliance on fossil fuels: the 2022 REPowerEU plan aims to “make Europe independent from all Russian fossil fuels well before 2030”. Work on the plan is still in progress, and to achieve the goal, says Jacques Delors Institute’s Energy Center, the union needs not only to step up the energy transition and roll out new measures, but proceed with diversifying gas supply sources as well.
Indeed, natural gas already plays a significant role in the transition to cleaner energy sources across the world. Demand is expected to remain strong in the coming years, as LNG becomes the energy of transition, gradually replacing coal in Asia, and supporting energy needs for heavy industries while renewables are still fledging.
At that, analysts are skeptical as to whether the natural gas market will become the buyer’s market: “Europe will depend on LNG supply,” says Anders Opedal, Head of Norway’s Equinor ASA. The rush for new contracts and positive forecasts is testament of this, and of that there is a need for the EU to maintain the momentum in the long term. And although the outlook for Europe’s gas supply is now more positive than it has been in a while, we are yet to see if the region learned its lesson and whether it will be able to provide its residents with all the energy they need.
