EU Gas Demand Remains Soft Amid Economic Slowdown

EU countries continue to minimize the use of natural gas for electricity production. According to Ember, electricity generation from gas-fired power plants in the nine months of 2023 decreased by 14% (all data is compared with the same period of the previous year, unless otherwise indicated). 

From January to September 2022, electricity production from natural gas in the EU amounted to 380.4 terawatt-hours (TWh), but in the nine months of 2023 it only reached 325.8 TWh. Thus, in absolute terms, gas-fired electricity generation decreased by 54.6 TWh, which is comparable to electricity consumption in Romania for the whole of 2022 (57.5 TWh).

Natural gas: the new normal

The natural gas saving policy has been in effect in the EU since the summer of 2022. According to the initial plan, from August 2022 to March 2023, EU countries were supposed to reduce gas consumption by 15% compared to the average level for the same months in 2017-2022 through savings in industry, electricity, and the housing sector. This target was exceeded, with EU natural gas consumption falling by 17.7% between August 2022 and March 2023, compared with the 2017-2022 average, according to Eurostat. At the same time, the natural gas saving plan has been extended until March 31, 2024.  

As a result, declining demand for natural gas has become the new normal in the EU. On the one hand, this led to lower prices. In the first ten months of 2023, the average natural gas price at the TTF decreased by 68%, from $1,476 per 1,000 cubic meters in January-October 2022 to $470 in January-October 2023. However, the gas saving plan resulted in losses for European industry. According to Eurostat, in September 2023, the eurozone countries recorded a decline in industrial production for the seventh month in a row. The key is the decline in energy-intensive industries such as nitrogen fertilizers that use natural gas as a feedstock.

Thus, in Germany, Europe’s largest producer of chemicals and mineral fertilizers, in October 2023 the PMI Manufacturing index was at 40.8, which is far below the recession threshold of 50. Moreover, due to natural gas savings, imports of nitrogen fertilizers from Russia have jumped sharply. According to the International Trade Center (ITC), supplies of nitrogen fertilizers from Russia to Germany over the eight months of 2023 increased by 271% (to 369,200 tons VS 99,400 tons in January-August 2022). As a result, Russia’s share in Germany’s nitrogen fertilizer imports increased from 5.0% to 17.2%, respectively.

Coal: a swan song, not a renaissance

Due to savings, the share of natural gas in electricity production in the EU decreased from 19.7% in January-September 2022 to 17.6% in January-September 2023. However, the share of coal fell even more – from 16.6% to 12.4%, respectively. One reason was the increase in electricity production from hydroelectric power plants (HPPs), which reduced the demand for electricity from coal-fired power plants, given their balancing role in the European market. 

In the nine months of 2023, thanks to improved weather conditions, hydroelectricity production in the EU increased by 11% (by 20.8 TWh), and its share increased from 10.2% to 11.8%. For example, according to the German Weather Service (DWD), in the spring of 2023 the average rainfall in Germany was 60% higher than last year, and in the summer of 2023, it was 86% higher.

Coal’s decline has also been driven by the ongoing phase-out of coal-fired power plants. A total of 2.5 GW of coal-fired power plants were decommissioned in France, Germany, Spain, Romania, and Greece in 2022 and the first half of 2023, according to Global Energy Monitor. As a result, by July 2023, total EU coal generation capacity had fallen to 108.7 GW, of which 69.5 GW was in Germany and Poland. Moreover, by the end of 2030, EU countries will have to decommission another 52.9 GW of coal-fired thermal power plants, so the share of coal in electricity production will be approximately halved. As a result, last year’s growth in coal-fired power generation was coal’s swan song rather than its renaissance. 

Low carbon energy: It’s all about infrastructure

For low-carbon energy, the commissioning of new infrastructure was critical. The decommissioning of Germany’s last three nuclear reactors (Emsland, Neckarwestheim-2 and Isar-2) coincided with the start of regular power generation at Finland’s Olkiluoto-3, the largest reactor in the EU (1.6 GW of net capacity). As a result, electricity generation at nuclear power plants in the EU in the nine months of 2023 decreased by only 0.2% (by 1.1 TWh). Moreover, due to a double-digit reduction in output at gas and coal-fired power plants, the share of nuclear power in the EU increased from 22.4% in January-September 2022 to 23.4% in January-September 2023. 

The total electricity production from solar and wind power plants in the nine months of 2023 increased by 11% (by 49.9 TWh), and their total share increased from 23.8% to 27.6%, respectively. Finally, electricity generation from biomass and rare renewables decreased by 7% (by 5.9 TWh) and 4% (by 0.3 TWh), respectively, while electricity generation at oil-fired power plants fell by 8% (by 3.9 TWh). As a result, the share of these sources decreased from 7.3% to 7.2%, respectively.