By Nicholas Earl
Europe will once again be highly dependent on liquefied natural gas (LNG) to meet its energy needs this winter, as governments race to keep the lights on and radiators warm over the coldest, darkest months of the year.
The latest report from the International Energy Agency (IEA) on global gas markets warns that LNG has now become a “baseload supply” for the European Union (EU).
The IEA said LNG now makes up a much bigger proportion of the bloc’s energy supply mix, rising from about 12 per cent in the 2010’s to 35 per cent in 2022 – similar to the contribution from Russia’s piped gas before the invasion of Ukraine.
LNG is natural gas that has been reduced to a liquid state, through a process of cooling before it is later converted back into a gas for use.
It is both very expensive and highly carbon intensive, with Europe competing with Asia for shipped supplies from the US and Qatar.
EU member states collectively imported more than 101m tonnes of LNG in 2022, according to previous reports from Refinitiv, accounting for 24 per cent of global LNG imports last year.
Last week, British Gas owner Centrica signed a £6.2bn ($8bn) mega deal with US fossil fuel producer Delta Midstream, to meet five per cent of the UK’s gas demand needs.
This dependency also has benefits as the IEA predicts that if storage injections continue at the average rate observed since mid-April, EU facilities will reach 90 per cent of their working capacity by early August and could be filled close to 100 per cent by mid-September.
Overall, it believes gas markets have moved towards a gradual rebalancing since the start of the year and that storage sites in key Asian and European markets provide grounds for cautious optimism ahead of the 2023-24 winter heating season in the Northern Hemisphere.
However, the IEA also warns full storage sites are no guarantee against market volatility during the winter, with the continent benefitting form warmer than expected conditions last year, which helped ease demand and stave off blackouts.
Major uncertainties remain, as a full halt in Russia piped gas supplies to Europe early in the heating season could easily renew market tensions, while economic growth in China could also reduce supplies.
“A new global gas market is taking shape after last year’s crisis. Given this, responsible producers and consumers must reconsider their approaches to supply security and flexibility, cooperating even more closely,” said Keisuke Sadamori, the IEA’s director of energy markets and security.
The group recommends that the EU and its allies should explore the development of innovative commercial offerings, new procurement mechanisms and cooperative frameworks favouring a more flexible supply of LNG.
