IEA Warns Europe About More Severe Gas Crunch Next Year

Executive director of the International Energy Agency (IEA) Birol warned Europe that it may face an even more severe winter next year after draining its gas storages to get through this winter. European countries have filled their gas storage tanks to almost 90% of capacity following Russia’s cutoff of supplies in response to Western sanctions imposed over its invasion of Ukraine. Gas prices had soared following the February invasion, but they have started to decline recently. That, however could be short lived as countries compete with each other to find LNG supplies and other alternative sources to replace Russian pipeline deliveries.

In order to ease energy issues, the European Union has proposed a gas price cap, which has divided the bloc so far as some members think it would make securing supplies more difficult. Germany, the Netherlands and Denmark are among those that oppose the proposal. The plan will be discussed on Friday in Prague during the EU leaders’ meeting.

Birol said the expectation is for Europe to get by this winter with gas storages at almost 90%, barring any additional political or technical surprises. But he added that the real challenge would begin in February and March when storage needs to be refilled after high winter demand has drained them to 25%-30%.

Meanwhile, European states have moved to protect consumers from the impact of high prices. Germany said on Wednesday it will subsidize power bills next year by paying €12.8 billion towards the usage fees charged by the four high-voltage transmission grid companies (TSOs).

Those fees account for around 10% of retail and a third of industrial companies’s power bills.

German Economy Minister Habeck said without Berlin’s intervention, the prices would have risen three folds because of runaway wholesale power prices and rising operational costs for the TSOs.

One of Europe’s main sources of gas until Russia’s February invasion of Ukraine was Nord Stream 1 pipeline that delivered gas from Russia directly to Germany. Both Nord Stream 1 and 2 comprise of two separate lines. Nord Stream 2 was filled with gas and ready to start flows but Germany suspended authorization just before Russia invaded Ukraine on Feb. 24.

Last week, three of the four lines have been disabled because of leaks, which the West and Russia bot said was sabotage. While Putin blamed the West, the U.S. and its allies accused Russia of sabotage.

Still, European Commission President von der Leyen admitted that they need to step up protection of their critical infrastructure by conducting stress tests and using satellite surveillance.

Von der Leyen also argued that EU member states should start jointly buying gas in order to avoid a price war, which would drive prices even higher.

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