November normally marks the start of the heating season proper in most of Europe. This year has been no exception—and gas demand is set to surge in the final months of the year to make up for lost solar and likely wind generation.
Earlier this year, gas prices in Europe spiked following a production outage at a Norwegian platform and geopolitical jitters about the Middle East. Prices normalized soon enough but remain elevated, depressing consumption. Government efforts across the European Union have also boosted the share of wind and solar in total generation, but unfortunately, these sources of electricity are seasonally variable. Even more unfortunately, their output is the lowest when demand for electricity is the highest: in winter.
This inevitably means that Europe will need a lot more gas, and it won’t matter that its gas storage is close to 100% full. In fact, withdrawals from European gas caverns had already begun in October. Bloomberg even suggested that if the winter is colder than the last two, storage could be depleted by the end of heating season.
The situation is further complicated by the fact that Ukraine has stated it would not renew a gas transit deal with Russia’s Gazprom after it expires next month. This means that European countries will lose their last pipeline supply from Russia. This may be in line with politicians’ desires, but it is decidedly not in line with regular energy consumers. The loss of that supply would mean higher demand for liquefied natural gas—likely including Russian liquefied natural gas.
European LNG imports are already on the rise, by the way. Reuters’ Clyde Russell reported in his latest column that October LNG purchases by European buyers had risen for the first time since the start of the year as gas suppliers and traders anticipate the seasonal spike in demand. These will likely move higher still as solar generation takes a 50% dive, per figures from climate NGO Ember, as cited by Reuters’ Gavin Maguire. And that’s the minimum level of decline in solar generation. Usually, solar falls more than 50% in the winter months.
Wind is not always at its best during the winter months, either. There are certainly windy days in winter, but there is such a thing as a wind drought and these sometimes occur during peak demand months, highlighting the limitations of wind power. It is because of these limitations, of both solar and wind, that Europe will be burning more natural gas in the coming three to four months—and more coal, too.
Europe is not a big fan of coal. In fact, it is the opposite of a fan, seeking to retire as much coal generation capacity as possible and replace it with wind and solar. However, in winter, Europe is reminded that heating and lighting are more important than emissions, which is why Europe continues to import coal and keeps coal-fired power plants slated for closure on hold for the winter months.
Of course, all this means that emissions from power generation on the continent are also set to increase after months of declines. Ember again reports that between January and September, lower coal- and gas-fired generation led to a 7% decline in emissions from the power sector. This is about to change in the coming weeks and months, once again reminding governments that boasting about the end of gas dependence back in 2023 may have been rather premature.
In fact, this dependence may deepen because the wind and solar industries are facing a mounting challenge: negative electricity prices resulting from excess production during peak sunshine periods. This means that new additions in wind and solar capacity may well slow down, capping the contribution of these two sources of energy and supporting a larger share in the energy mix for gas and maybe even coal.
At the same time, the European Union remains dead set on ending all supply of Russian gas by 2027 at the latest—even as purchases of Russian liquefied natural gas increase. Indeed, the likely new energy commissioner of the bloc said he had an ambition to end Russian gas imports before the 2027 deadline, come what may.
Dan Jorgensen recently said he would prioritize the end of Russian gas imports within his first 100 days in office, even as he admitted that “We do have a challenge, our industry is suffering. They are paying two or three times as much for energy as in the U.S. and China…ordinary people are struggling to pay their bills.”
This is not about to change in the observable future. It might actually get even worse as the EU doubles down on ending Russian energy supplies with zero low-cost alternatives for reasons of infrastructural constraints. So, gas is going to remain a lot more expensive for Europeans than it is for Americans and even Chinese. But gas will continue to feature prominently in Europe’s energy mix—because climate change or not, winter still comes every year.
By Irina Slav for Oilprice.com