Macroscope

Winter is coming: Europe is not out of the woods on energy security

While a mild winter, energy supply diversification and consumption caps helped Europe avoid an energy crisis in recent months, summer is likely to bring higher prices

European governments will need to aim to cut consumption by 10 per cent from their 2021 levels to avoid an energy crisis next winter

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Smoke rises from the chimneys of a combined heat and power plant at Berlin Brandenburg Airport in Schönefeld, Germany, on February 7. Photo: DPA/AP

Edoardo Campanella, senior fellow at the Mossavar-Rahmani Center for Business and Government at Harvard Kennedy School, is co-author (with Marta Dassù) of Anglo Nostalgia: The Politics of Emotion in a Fractured West.

Published: 9:30pm, 7 Mar 2023

Europe can heave a sigh of relief – for now. Thanks to an exceptionally mild winter and a well-designed strategy of supply diversification and consumption-reduction measures, the continent avoided a catastrophic energy crisis following Russia’s invasion of Ukraine.

The European Union’s untapped gas-storage capacity is at around 60 per cent, and the benchmark Dutch Title Transfer Facility (TTF) price has fallen by more than 85 per cent from its peak last August, from €340 per megawatt hour (US$360/MWh) to less than €50/MWh. But there is a risk of significant repricing in the coming months, which would weigh heavily on energy bills.

The tightness in European gas markets is likely to become more apparent as summer approaches, possibly pushing prices back towards €100/MWh or higher. The European Central Bank’s fight against inflation is not over.

Before Russia’s invasion, European natural-gas consumption amounted to just under 500 billion cubic metres per year. Add today’s stockpiled gas, domestic production and current imports of both natural gas and liquefied natural gas, including from Russia, and you get 440 bcm. Thus, Europe will need to cut consumption or increase LNG imports by 60 bcm to fill the demand-supply gap.