July 18, 2022

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IEA Chief Offers Europe Tips to Avoid Gas Crunch

The head of the International Energy Agency (IEA) has warned that despite some progress on diversifying its gas supplies, Europe is in an "incredibly precarious situation" with more work needed to prepare itself for "a long, hard winter."

IEA Executive Director Fatih Birol posted a commentary on the IEA's website on Monday, proposing measures that could be taken in the short term to prevent a "major gas crunch" — focusing in particular on steps to reduce demand.

"The first immediate step towards filling European gas storage to adequate levels before winter is to reduce Europe's current gas consumption, and to put the saved gas into storage," Birol said on Monday.

Birol proposed the following five measures:

  • Introduce auction platforms to encourage industrial gas consumers to offer up some of their contracted gas supply to the highest bidder.

  • Use less gas for power generation by temporarily increasing the use of coal and oil and accelerating deployment of low-carbon sources, including nuclear power, where feasible.
  • Promote coordination between gas and electricity operators across Europe, including coordination on mechanisms to "shave" peaks in demand.
  • Reduce household electricity demand through public information campaigns to encourage behavioral change.
  • Harmonize emergency planning across the EU at the national and European levels.

Birol said in his commentary that after Russia's Feb. 24 invasion of Ukraine, "nobody in Europe or elsewhere could be under any illusions about the risks around Russian energy supplies."

Flows of Russian gas to Europe have fallen steadily since the second half of last year, with a particularly sharp decline in recent months.

European leaders believe that Russia has deliberately limited its exports of gas to the region to gain political leverage after the US and Europe imposed tough sanctions on Moscow in response to its war in Ukraine.

The EU has set a target of filling gas storage facilities to 80% of capacity by Nov. 1 of this year and to 90% of capacity by the same date in subsequent years.

But Birol said Europe cannot achieve those goals by relying on additional purchases of gas from other suppliers.

"These supplies are simply not available in the volumes required to substitute for missing deliveries from Russia," he added.

Birol said public awareness campaigns could play a significant role in driving down demand.

"Simple steps such as turning down the heating by a couple of degrees in Europe can save the same amount of natural gas that is supplied over the winter by the Nord Stream pipeline," he added.
Tom Pepper, London

Russia Leaves Europe in Dark Over Gas Supplies

Recent signals from Russia indicate that it is not in any hurry to reverse a recent sharp cut in gas supplies to Europe as the region scrambles to build up storage volumes ahead of the coming winter.

Reuters reported on Monday that struggling German utility Uniper had received a "force majeure" notice from Russian gas giant Gazprom, asserting that shortfalls in its deliveries of gas since mid-June were caused by reasons beyond its control.

Separately, Uniper said on Monday that it had fully utilized a €2 billion ($2 billion) credit facility from German economic development bank KfW, in response to "the ongoing supply shortfalls of Russian gas."

The company is also seeking financial support from Germany's federal government.

Germany is Europe's biggest importer of Russian gas and Uniper imports more Russian gas than any other German company.

Customers Kept in the Dark

In mid-June Gazprom reduced deliveries of gas to Germany via the Nord Stream 1 pipeline to around 68 million cubic meters per day — about 40% of its capacity — citing delays in the return of a turbine from Canada after repairs.

And on Monday, Jul. 11 Gazprom closed down the pipeline completely for 10 days of scheduled maintenance.

Canada granted a sanctions waiver, allowing the turbine to transported to Germany — which reportedly occurred on Sunday.

But Gazprom appears to be keeping its European customers in the dark about when the turbine could be reinstalled at the pipeline's Portovaya compressor station in Russia — as well as if and when export volumes might pick up again.

Moscow maintains — somewhat implausibly — that it is not using its gas exports to Europe as a weapon in retaliation for EU sanctions against Russia in response to that country's invasion of Ukraine.

The sharply restricted flows of Russian gas in recent weeks have propped up European gas prices and they pose a threat to the EU's goal of increasing its gas storage volumes to 80% by the end of October.

European politicians are concerned that energy shortages and the resulting high prices could weaken the bloc's willingness to keep supporting Ukraine as Russia continues to wage war on the neighboring country.

Moscow Unconcerned

Russian presidential aide Maxim Oreshkin said over the weekend that the low flows of gas to Germany via Nord Stream 1 are of no great concern to Moscow.

"They took [the turbine] to Canada, it got stranded there. Well, you don't want it — we don’t need it," he said.

So far at least, high prices for oil and gas have blunted the impact of western sanctions against Russia, with the country's earnings from exports of oil and gas holding up much better than many pundits had expected.

Moscow also insists that as Europe dials down its purchases of Russian oil and gas it will simply divert its exports to other markets, especially in Asia.

Gazprom said on Sunday that its gas exports to China hit a new daily record, without providing figures, as it ramps up volumes under existing contracts.

However, in order to replace the gas volumes that it has been shipping to Europe in recent decades, it would need to negotiate new contracts and build new infrastructure — something that would take years.

Europe, meanwhile, is striving to reduce its dependence on Russian gas, but that too will take several years.
Staff Reports

EU Signs Gas, Green Energy MOU With Azerbaijan

The EU has signed a memorandum of understanding (MOU) to double its imports of gas from Azerbaijan to 20 billion cubic meters per year in "a few years," European Commission President Ursula von der Leyen said in Baku on Monday.

Von der Leyen's trip to the Azeri capital comes at a critical moment for the EU, with Moscow's war in Ukraine prompting the bloc to reduce its heavy dependence on Russian gas and seek out dependable, long-term alternative supplies.

She said imports of Azeri gas, via the "southern corridor" pipeline network via Turkey to southeast Europe, would increase to around 12 Bcm/yr in 2023 from 8 Bcm/yr in 2021 and compensate for reduced supplies of Russian gas.

"The EU has therefore decided to diversify away from Russia and to turn to more reliable, trustworthy suppliers," she said.

The EU began importing Azeri gas in late 2020 with the start-up of the Transadriatic Pipeline (TAP) that runs almost 900 kilometers from the Greek-Turkish border via Albania to southern Italy.

The TAP consortium has previously sounded out market interest in doubling the line's capacity to 20 Bcm/yr, but the response was muted.

The MOU signed in Baku also included a commitment to increase cooperation in renewable energy, Von der Leyen said, citing Azerbaijan's "tremendous" potential in wind, solar and green hydrogen.

"Gradually, Azerbaijan will evolve from being a fossil fuel supplier to becoming a very reliable and prominent energy partner for the EU," she said.

Von der Leyen also said that Azerbaijan would reduce methane emissions "throughput the entire gas supply chain," and urged the former Soviet republic to join the global methane pledge.

Azerbaijan is targeting net zero emissions by 2050, and has signed deals with Masdar of the United Arab Emirates and Acwa of Saudi Arabia to build onshore solar and wind plants.

BP, which operates Azerbaijan's two big offshore oil and gas projects — Azeri-Chirag-Guneshli and Shah Deniz — submitted a de-carbonization "masterplan" to the government in May to assist in the country's energy transition efforts.

Paul Sampson, London


In Brief

China’s LNG Imports Sharply Decreased  

Expensive international LNG prices pushed China to reduce LNG imports and increase pipeline gas imports and domestic production. (see table). The trend will continue if international oil and gas prices remain high for the rest of this year.

China’s LNG imports sharply decreased 20.8% in the first half of this year compared to the same period of last year, to 31.26 million tons, the General Administration of Customs said this Monday.

The cost of LNG imports increased 48.8% year on year in the first six months of this year.

In June, China’s LNG imports decreased 26% year on year while the cost of LNG imports increased 21.5% year on year, according to customs data.

Some Chinese importers who have secured LNG supply from overseas by long-term contracts resold their contracted volumes to other countries, taking advantage of high spot prices for profit maximization.

China's Gas Consumption
Domestic Production (Bcm)Y-o-Y %Chg.Total Gas Imports (million tons)Y-o-Y %Chg.LNG Imports (million tons)Y-o-Y %Chg.Pipeline Gas Imports (million tons)Y-o-Y %Chg.
Jan-Feb37.26.7%19.9-3.8%12.7-8.7%7.26.3%
Mar19.76.38.0-8.54.6-17.03.48.8
Apr17.74.78.1-20.34.4-34.53.79.3
May17.74.99.1-10.64.9-28.14.226.0
Jun17.30.48.7-14.64.8-26.03.911.5
Total109.64.9%53.6-10.0%31.3-20.8%22.311.3%

Dawn Lee, Beijing


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India39.7240.1839.7940.1739.3639.1940.6638.8340.5739.8239.0238.7439.12
Sodegaura, Japan40.3541.7841.8141.8940.3236.7941.4039.2141.2642.2539.5538.6840.53
Zeebrugge, Belgium21.6020.1119.8020.1721.1421.4620.8119.7520.6719.7621.2620.4221.35
Huelva, Spain28.7127.1726.8527.2428.2028.0227.8826.7327.7526.8228.2627.3228.29
Isle of Grain, UK18.4416.9816.6817.0318.0218.3017.7616.6317.5316.6518.1117.2918.20
Everett, US6.575.165.515.226.296.170.015.905.694.846.75----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback14. Feb28. Feb14. Mar28. Mar11. Apr25. Apr9. May23. May6. Jun20. Jun4. Jul18. Jul102030405060Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia0.0043.020.7743.02
SW Europe0.0029.38-1.2629.38
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.467.487.026.43
NBP, UK (futures)-0.7923.1623.9526.57
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF1.2647.1245.8549.58
Zeebrugge (Belgium)0.0024.6524.6531.15
German NCG-0.2845.5545.8450.19
NBP (UK)-1.4319.2520.6925.71
US Markets
US Spot Prices
Sabine Pass, Louisiana0.987.566.586.77
Corpus Christi, Texas0.767.296.53--
Cove Point, Maryland1.527.616.096.20
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month0.467.487.026.43
Second Mth0.467.386.936.32
Third Mth0.457.376.926.30
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaAug '21Sep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22020406080Energy Intelligence