Europe still faces a gas shortage risk this year, IEA cautions

LONDON – Europe still faces a risk of natural gas supply shortages in 2023 unless it further curbs demand, according to the International Energy Agency. 

The outlook for the continent has improved since 2022. But in a worst-case scenario, Russia could halt all of its pipeline gas deliveries to Europe, with liquified natural gas (LNG) supplies tight and weather-related demand increasing.

Under those conditions, the supply gap could stretch to 40 billion cubic metres, the IEA said in a report on Wednesday. That represents just below a tenth of Europe’s consumption before the recent energy crisis. The IEA’s base case does not foresee such a gap.

The report was published after the agency hosted a meeting of ministers from about 40 countries to discuss the gas crunch, which peaked in 2022 after

Russia’s invasion of Ukraine.

Gas prices have eased significantly since then, thanks to mostly mild winter weather, energy-saving efforts and plentiful shipments of LNG. 

That has raised optimism that inflation has passed its peak and a recession can be averted. Still, the IEA’s outlook highlights that the situation remains fragile. 

Gas markets are in “better shape than many expected one year ago”, IEA executive director Fatih Birol said in a statement. “But the reality is that winter 2023-2024 is likely to be the real test.”

Gas prices remain higher than historic averages and benchmark futures for the next heating season are trading above current levels, signalling a potential for a further squeeze in the market. In the coming weeks, the European Commission plans to consult with member states over whether to prolong emergency steps to reduce gas demand. Those measures, put in place at the height of the crisis, are set to expire at the end of March.

IEA in 2022 saw the possibility for an even wider supply gap of up to 57 billion cubic metres in the European Union in 2023, its Wednesday report said. Higher-than-expected storage levels have since improved the outlook.

To close the potential supply gap outlined in the new report, the EU would need to cut gas usage by some 37 billion cubic metres through energy efficiency, continued expansion of renewable power and other measures, the IEA said. BLOOMBERG