EU gas supply security facing 'unprecedented' risks on Russia uncertainty: IEA

The EU's gas supply security is facing "unprecedented" risks this winter triggered by the structural market uncertainty caused by Russian supply behavior, the International Energy Agency said Oct. 3.

In its quarterly market update, the IEA also said European gas demand was set to tumble by a record 10% in 2022, with Europe expected to consume just 548 Bcm of gas this year.

The agency added that the current market tightness, which has seen prices surge to new record highs, is expected to continue well into 2023.

Platts, part of S&P Global Commodity Insights, assessed the Dutch benchmark TTF month-ahead price at an all-time high of Eur319.98/MWh on Aug. 26. It was last assessed on Sept. 30 at Eur164.50/MWh.

"The outlook for gas markets remains clouded, not least because of Russia's reckless and unpredictable conduct, which has shattered its reputation as a reliable supplier," Keisuke Sadamori, the IEA's Director of Energy Markets and Security, said.

"All the signs point to markets remaining very tight well into 2023," Sadamori said.

The agency said that global gas consumption was also expected to fall in 2022, largely as a result of the decline in Europe, by 0.8% to 4.071 Tcm.

The IEA said global gas demand was forecast to return to growth in 2023, albeit only by 0.4%, but that the outlook was subject to a "high level of uncertainty, particularly in terms of Russia's future actions and the economic impacts of sustained high energy prices."

European measures

In Europe, gas consumption declined by more than 10% in the first eight months of this year compared with the same period in 2021, driven by a 15% drop in the industrial sector as factories curtailed production.

As well as falls in demand, Europe is diversifying its supply mix and also taking other legislative measures as part of efforts to prepare for the coming winter.

The EU has set minimum storage targets of filling sites to 80% of capacity by Nov. 1, 2022, and to 90% of capacity by Nov. 1 in subsequent years.

EU storage facilities were close to 90% full as of end of September, but the IEA warned that the absence of Russian supply presented challenges for refilling them in 2023.

The IEA said that in the event of a complete Russian supply shutdown starting from Nov. 1, 2022, EU gas storage would be less than 20% full in February assuming a high level of LNG supply.

However, with low LNG supplies, sites could fall to just 5% full, which would increase the risk of supply disruptions in the event of a late cold spell.

"A reduction in EU gas demand through the winter period of 9% from the average level of the past five years would be necessary to maintain gas storage levels above 25% in the case of lower LNG inflows," it said.

"And a reduction in demand of 13% from the five-year average would be necessary through the winter period to sustain storage levels above 33% in the case of low LNG inflows."

The agency said gas saving measures would therefore be "crucial" to minimize storage withdrawals and keep inventories at adequate levels until the end of the heating season.

LNG competition

The IEA said Russia's moves to cut off gas supplies to Europe had also deepened market tensions and uncertainty ahead of the winter, not just for Europe but also for all markets that rely on the same supply pool of LNG.

The IEA forecasts that Europe's LNG imports will increase by over 60 Bcm this year, or more than double the amount of global LNG export capacity additions.

This, it said, was keeping international LNG trade under strong pressure for the short- to medium-term. "It also implies that Asia's LNG imports will remain lower than last year for the rest of 2022," it said.

"However, China's LNG imports could rise next year under a series of new contracts concluded since the beginning of 2021, while a colder-than-average winter would also result in additional demand from northeast Asia, further adding to market tightness."

Chinese gas demand is forecast to increase by less than 2% this year, its lowest annual growth rate since the early 1990s.

The IEA said the current gas crisis also cast longer-term uncertainty on the prospects for gas, especially in developing markets where its use was expected to rise at least in the medium term to replace other fuels.

The high prices have incentivized switching to fuels such as coal and oil for power generation, while in some emerging and developing economies, the price spikes have triggered shortages and power cuts, it said.