Europe’s Race to Secure New Energy Sources Is on
a Knife’s Edge
A long-term switch to more renewable sources has been
overtaken by a short-term scramble to stave off a crisis.
Countries like Germany are bringing back coal-fired
electric power plants or delaying their retirement.
Stanley
Reed
By Stanley
Reed
Stanley
Reed, who has covered energy issues for The Times since 2012, reported this
article from London.
July 30,
2022, 12:01 a.m. ET
https://www.nytimes.com/2022/07/30/business/europe-natural-gas.html
As Russia
tightens its chokehold on supplies of natural gas, Europe is looking everywhere
for energy to keep its economy running. Coal-fired power plants are being
revived. Billions are being spent on terminals to bring in liquefied natural
gas, much of it from shale fields in Texas. Officials and heads of state are
flying to Qatar, Azerbaijan, Norway and Algeria to nail down energy deals.
Across
Europe, fears are growing that a cutoff of Russian gas will force governments
to ration fuel and businesses to close factories, moves that could put
thousands of jobs at risk.
So far, the
hunt for fuel has been met with considerable success. But as prices continue to
soar and the Russian threat shows no sign of abating, the margin for error is
thin.
“There is a
very big and legitimate worry about this winter,” said Michael Stoppard, vice
president for global gas strategy at S&P Global, a research firm.
Five months
after Russia’s invasion of Ukraine, Europe is in the grip of an accelerated and
increasingly irreversible transition in how it gets its energy to heat and cool
homes, drive businesses and generate power. A long-term switch to more
renewable sources of energy has been overtaken by a short-term scramble to make
it through the coming winter.
The amount
of natural gas coming from Russia, once Europe’s largest source of the fuel, is
less than a third of what it was a year ago. This week, Gazprom, the Russian
energy giant, throttled back already sharply reduced flows in a key pipeline
from Russia to Germany, sending European gas futures prices to record levels.
Within a
day of Gazprom’s announcement, the European Union called for a 15 percent cut
of gas use throughout the bloc.
This move
away from Russian natural gas — almost unthinkable after a decades-long embrace
of Siberian gas delivered via pipelines stretching thousands of miles — is
sending shock waves through factory floors and forcing governments to seek
alternative sources of energy.
The
multipronged effort to uncover alternatives to Russian gas has largely made up
for the shortfall. Despite Gazprom’s cutbacks, supplies of natural gas in
Europe in the first half of 2022 have been roughly equal to those of the same
period last year, according to Jack Sharples, a fellow at the Oxford Institute
for Energy Studies.
The
standout performer in this comeback has been liquefied natural gas, chilled to
a condensed liquid form and transported on ships. L.N.G. has essentially
switched places with piped gas from Russia as Europe’s main source of the fuel.
About half of the supply has come from the United States, which this year
became the world’s largest exporter of the fuel.
Looking
toward the end of the year, European countries are pushing energy companies to
fill salt caverns and other storage facilities with gas to provide a margin of
safety in case Russia shuts down the pipelines.
Europe’s
gas storage has now built up to about 67 percent of overall capacity, more than
10 percentage points higher than a year ago. Those levels create some comfort
that European countries might reach something close to the European Union’s
target of 80 percent full before winter.
But
concerns are still mounting, and there are many reasons the European effort
could fall short as colder weather approaches.
Russia is
well aware of the European Union’s campaign to store enough gas to fend off a
cutoff this winter and wants to impede it, analysts say, by causing pipeline
flows to dwindle. And all sorts of weather issues — an exceptionally cold
winter, a storm in the North Sea that knocks out Norway’s gas production or a
busy Atlantic hurricane season that delays L.N.G. tankers — could tip Europe
into energy shortages.
“We are
getting close to the danger zone,” said Massimo Di Odoardo, vice president for
gas at Wood Mackenzie, a research institution.
Reflecting
these worries, European gas futures prices have doubled in the last two months
to about 200 euros a megawatt-hour on the Dutch TTF exchange, around 10 times
the levels of a year ago.
The
astronomical cost of energy in Europe is putting a wide variety of industries
on the defensive, forcing changes that may help make the European Union’s
voluntary 15 percent gas savings target attainable. The International Energy
Agency recently forecast that gas demand in the region would fall 9 percent
this year.
For
instance, a steel mill owned by ArcelorMittal on Hamburg’s busy harbor in
Germany has for years used natural gas to extract the iron that then goes into
its electric furnace. But recently, it shifted to buying metal inputs for its
mill from a sister plant in Canada with access to cheaper energy. Natural gas
prices in North America, while elevated by historical standards, are about a
seventh of European prices.
“Natural
gas costs so much that we cannot afford” to operate in the usual way, said Uwe
Braun, chief executive of ArcelorMittal Hamburg.
Few
analysts or executives expect the situation to ease in the coming months.
Instead, the winter may well prove to be a nail-biter with energy-intensive
industries like metal smelters and makers of fertilizer and glass under pressure.
News of
plant closures or production cutbacks is already trickling in. In Romania, ALRO
Group said recently that it was closing production at a large aluminum plant
and laying off 500 people because high energy costs made it uncompetitive.
In some
countries, including Britain and Germany, energy companies have not yet fully
passed these costs to their customers, meaning the hardest blows are yet to
come.
“The
biggest risk at the moment is an explosion of household and industrial energy
prices this winter, which the public and industry can barely deal with,” said
Henning Gloystein, a director at Eurasia Group, a political risk firm.
Shipments
of liquefied natural gas, the chief alternative to piped-in gas from Russia for
much of the continent, remains a costly alternative. And Europe’s growing
appetite for L.N.G. may be hurting other regions of the globe that rely on the
fuel.
Europe has
essentially been bidding liquefied gas away from other markets, chiefly in
Asia, where China, Japan and South Korea are major customers. Europe is “taking
L.N.G. away from markets that are not prepared to pay the prices that Europe
may be prepared to pay,” Ben van Beurden, chief executive of Shell, a provider
of L.N.G., told reporters on Thursday. “That is a very uncomfortable position
to be in.”
Countries
like Germany and Romania are also taking other steps, including bringing back
coal-fired electric power plants or delaying their retirement. The idea is to
minimize the amount of gas used at power plants to generate electricity and
save it for essentials like home heating or running factories. On Thursday, the
International Energy Agency forecast that global coal demand this year would
reach almost nine billion tons, matching its peak of 2013.
Many
uncertainties remain. Although Europe has about two dozen terminals to receive
liquefied natural gas, none are in Germany. Berlin is scrambling to build as
many as four of these installations and has set aside €2.5 billion ($2.55
billion) to rent four L.N.G. processing vessels, but it is not clear if any of
them will be online quickly enough provide much help this winter.
Weather may
also be crucial, and not only in Europe. A frigid winter in Asia, long the
primary market for liquefied gas, would heighten the competition with Europe
for what analysts say is a limited global supply of L.N.G.
It is also
hard to see where else large increases of gas would come from. “If we lose
Russian supply entirely, there is not very much headroom to increase supply
from elsewhere,” Mr. Sharples of the Oxford Institute said.
There are
other wild cards. Until the gas crunch hit, the Dutch government set in place a
plan to wind down the enormous Groningen field in the northern Netherlands —
one of the few major sources of natural gas in mainland Europe — because of
local anger over earthquakes caused by gas extraction.
Some
observers question the government’s continued reluctance to awaken what Mr. Stoppard
of S&P Global called a “sleeping giant” that could put very substantial
amounts of gas — perhaps 40 percent of Germany’s annual consumption — back into
the grid.
The Dutch
government has decided to hold off on permanently closing the gas wells because
of “the uncertain geopolitical developments,” but it insists it will consider
using Groningen only “in the worst-case scenario, if people’s safety is at
risk.”
This stance
could be tested in the coming months.
Melissa
Eddy contributed reporting.
Stanley
Reed has been writing from London for The Times since 2012 on energy, the
environment and the Middle East. Before that he was London bureau chief for
BusinessWeek magazine. @stanleyreed12 • Facebook
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