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Gas in Europe: “We are not yet out of the crisis”

For more than a week, bottlenecks from LNG carriers have been clogging up Spanish ports, as if Europe could no longer absorb more gas. According to the operator of the Spanish gas network Enagas, this situation should continue “at least until the first week of November”.

Falling prices, congested ports of these ships carrying liquefied natural gas (LNG)… After months of energy crisis and the hunt for alternative natural gas supplies to compensate for the fall in supply from Russia, is Europe finally out of the woods? In an interview with L’Express, Thierry Bros, energy expert and professor at Sciences Po Paris, details the elements of uncertainty for this winter.

L’Express: Is Europe done with the gas crisis?

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Thierry Bros: LNG tanker traffic jams off Spanish ports are a temporary technical problem. The current situation can be explained by several factors, such as the weather, which was very mild in October. Whether stocks of member countries of the European Union (EU) are currently more than 94% full (99.79% for France according to AGSI data), this is largely because there have been political interventions. Some industrialists wanted to ingratiate themselves with ministers. When regulations are put in place and companies are forced to follow them, the market responds. For my part, I consider that energy is an area where regulation is needed but where daily interference is not needed either.

The target of 80% of gas stocks set last June by the European Commission was a very good thing, but there has therefore been this incessant presence of political leaders. Admittedly, we are even better off at 94% than at 80%, and we have gained at least 15 days of supply over the winter, so political leaders and more or less state-owned companies can tell themselves that they did a good job and they were there. We can all the same wonder, in the event that the price of gas would collapse this winter, if it was smart to buy it expensive this summer and resell it cheap this winter… We must also recall that the Council of the EU adopted on August 5 a regulation relating to a voluntary reduction of 15% of the demand for natural gas this winter in order to make savings for this winter, which also had an impact.

Since the first quarter of 2022, the European Union has benefited from a very strong influx of liquefied natural gas (LNG), mainly from the United States…

It should be noted that this LNG from the United States is sold when it is transferred to the ship in the Gulf of Mexico, off the American coast. The European or Chinese companies that bought the boat have the freedom to transfer it wherever they want. The United States provides this very great flexibility for LNG, unlike other countries, such as Qatar and Algeria.

Europe also received LNG from China: Chinese domestic demand being weak, Beijing sold its surpluses to European countries in early September…

The Chinese, who have less storage capacity than the Europeans, also wanted to secure their supplies. They bought Russian gas as well as LNG from all over the world, especially the Americans. But due to their different confinements in certain territories, they had too much LNG this summer and rerouted the cargoes to Europe. But the situation will be different this winter and Beijing will no longer sell LNG to Europe.

What elements could have negative impacts on Europe’s gas supply capacities this winter?

We don’t know how this winter will be weather-wise, but if it’s cold, it will have an impact. Besides, what will Vladimir Putin want to do? The Russian president still sends around two billion cubic meters of gas per month to Europe, passing through Ukraine and Turkey. If he decided to stop at some point this delivery, Europe would then be in a more complicated situation. Everyone thinks that Vladimir Putin can contribute to higher gas prices by reducing the volume delivered to Europe, but he can also send a lot more natural gas to Europe and therefore contribute to lower prices. The Russian president plays the principle of uncertainties and this complicates the task of traders.

If we want to get out of this inability to know whether it is going to send gas or not, the only solution is to put an embargo on Russian gas, but we cannot do that right away because the two billion cubic meters per month received in Europe are essential.

To sum up, if until now the confinements in China, the import of LNG to Europe, the reduction of consumption and the delivery of a small part of Russian gas have helped us, we cannot count on the first two factors this winter and we are therefore not out of the crisis.

The Dutch TTF, the European benchmark for natural gas, is currently moving close to its lowest level since June 2022. It even fell temporarily below 100 euros per megawatt hour at the end of October. In the United States, gas prices have collapsed. gas prices will they continue to decline?

The months of October and March are quite atypical months in terms of the price of gas, the price of which is calculated on the balance between supply and demand and stocks. In October, when it’s still mild like it has been this year, we can have prices going down, and in March, when it’s cold and stocks are empty, prices going up.

Prices have fallen but this fall is less marked on the price curve for delivery in the future than on the spot market (Editor’s note: the spot market represents buy/sell contracts for the same day or the next day and it is sensitive to the circumstances of the day such as the weather, unlike “futures” contracts which are established for delivery in the future, with a price that fluctuates, but a price that is fixed when the contract is signed). Admittedly, we are close to 100 euros per megawatt hour, but these rates remain very high.


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