Europe risks losing 100 billion cubic meters of gas demand in two years. The fall is accompanied by smiles on the faces of the leaders of the European Union, telling the alarmed public that everything is going strictly within the plan.

Brussels convinces that in general consumers are good fellows as they need less and less gas. Not households, but the industry which only owing to unprecedented consciousness uses less and less natural gas get the main applause, being afraid that the slightest growth will lead to a new round of energy crisis.

When it snows in Madrid

The French ministers want to forbid the sun. No, they did not go mad. They only suggest imposing a ban on import of the solar panels made in China. The proposal was made after the European industrialists recognized an obvious thing: they cannot compete with the Chinese companies. Closer to the end of article we will explain how it is connected with the gas market of the European Union.

For now there is some statistics. For the first three quarters of the current year, according to Eurostat, consumption of gas in the EU made 215.24 billion cubic meters. Of course, it is too early to talk about the final results of the year. Moreover, we do not know whether the winter will be cold or warm.

Outdoor temperatures will be important when summing up not so much 2023 as the current heating season. If cold weather strikes in February or March as already happened, the power supply system of the EU is waited by difficult test, after all possibility of daily selection from the underground gas storages (UGS) will be much lower than marks, characteristic to start a selection season.
Besides, there are no prerequisites for surplus of the offer on a global scale. And it is important in the current situation for that simple reason that cold weather usually is not limited only to one Europe. They cover also Asia and even North America. In such a situation, everyone needs gas; they have to compete for it. Let’s remember how snow fell in the winter of 2021 in Madrid as in 2013 in the market of Great Britain there were local jumps of gas quotations to $800 for 1 thousand CBM.

There is also questions concerning a wind – it is exclusively changeable energy carrier. Development of wind farms can change by three-four times within a week, influencing consumption of natural gas in an unpredictable way.

The above should not be perceived as wishing troubles on European consumers, and even more so, it should not be perceived as hysteria. It is only listing of risks which are characteristic for any heating season in the EU. Pay attention that the listed problems beat on consumers and quite recently (at the beginning of the 2020s) and 10 years ago. Simply in the conditions of energy crisis which end was declared thoughtlessly by some European politicians at the beginning of summer of the current year, all risks become much more dangerous.

We will not guess what this heating season will be like in the European Union. But it is easy to consider that at preservation of dynamics of demand which was observed in the period of last heating season, consumption of natural gas in the European Union following the results of 2023 will make about 315-320 billion cubic meters. It is a terrible collapse.

Gas deception

In 2021 consumption of natural gas in the European Union made about 410-420 billion cubic meters, in 2022 this indicator was reduced approximately to 355 billion cubic meters. If to proceed from statistics of the International Power Agency (IPA), last year the EU and Great Britain reduced consumption by 70 billion cubic meters. There is more modest assessment of falling – 60 billion cubic meters. But it is impossible to call this divergence essentially important.

The concept «reduced consumption» does not capture fully the process essence as there can be a deceptive impression as if it became result of the conscious decision of the European heads and consumers. Yes, country leaders of Europe try to pretend, as if decline in demand is a result of conscious efforts of the industry, households and power industry under the wise management of European Commission. Moreover they even now morally train the population for possible interruptions in the winter, hinting at their consciousness and readiness for demand management. European analytical organizations behave similarly.

At the beginning of this year we noted surprising aspiration of the analysts working in the European Union to emphasize efficiency of the program of reduction of demand for natural gas realized in the EU since August, 2022. We then assumed that the program was going to be extended, for which it was necessary to create a favorable information background.

The program itself initially provided for a reduction in gas demand by 15% from August 1, 2022 to March 31, 2023, relative to the average for the previous five years. Then it was actually extended – until March 31, 2024. Given the current dynamics of demand, it will have to be extended again in 2024 amid talk of incredible efficiency.

The program arose only as the convenient answer to two questions. The first: «Why does demand for gas fall?» The second one: «Why the European Commission does not do anything with it?» Answer: «The European Commission wisely operates decrease in demand for 15%!»

The problem is only that falling was observed since the end of 2021. And respected European analysts from Bruegel managed to report in the first quarter of 2022, being guided by data of statistical departments, about decline in demand for gas in an industrial segment for January and February for 20%.

In other words, we deal with a classical collapse which is caused by economic problems. Moreover, if Europe had not begun to escalate the conflict with Russia last year, it would still have had to demonstrate dismal results in the gas market. Most likely, the drop in demand would be exactly at the level of 60–70 billion cubic meters (if we take consumption in the European Union and Great Britain). The only difference we would see in this hypothetical situation is that demand could begin to recover in 2023. And without Russia this turned out to be impossible.

Industry is the most important

Bruegel relies on public European statistics, carries out comparison of the current demand with a standard as which average monthly indicators for 2019-2021 act. It brings some confusion with a standard from which the European Commission and Eurostat make a start (average consumption in five years prior to 2022) but Bruegel makes convenient tables.
In 2022 demand for natural gas in the European Union (without filling of storages) fell to 12% below a three-year standard. If to look at the fourth quarter of last year, we will see that in October this indicator decreased by 27%, in November – for 24%, and in December – for 13%.

That is demand was restored? Yes and no. Yes, since formally the decrease in monthly terms in October was noticeably greater than in December. And here we see what role the weather factor can play. In October and November, 2022 there was abnormally warm weather. Therefore the main decline in demand was provided by households which in reference years consumed more gas because of need to heat rooms. And here December (especially its beginning) was cold.

In the first quarter 2023 consumption gave for 18% of rather three-year standard. And here it is worth noticing that comparison with five- and three-year standards is some kind of attempt to smooth a little the problem of the gas market.

If consumption in 2019 and 2021 was approximately comparable, 2020 showed a noticeable failure. Yes, against the last two years falling of 2020 does not seem so essential any more but nevertheless it conveniently reduces an average value. After all if to compare data for 2022 and 2023 directly to 2021, it can turn out absolutely sadly.

The second quarter brought falling already for 20%. Whether it is possible to find some pluses in this falling? Certainly! For example, it is possible to pay close attention to electrical power sector and to declare as if decrease in demand for gas is a positive sign for all power balance of Europe as natural gas is replaced with other power sources (first of all – renewed). One can also be especially glad that the wind is blowing as it should, and not like in 2021, when the installed capacity of wind power plants increased, and their productivity sharply decreased.
To rejoice in the XXI century of high dependence of developed economy on weather conditions is in general the rule of a good form in the EU.

But let’s leave irony. Demand for gas from power industry and households really very much depends on weather conditions. We also talked about that at the beginning of the article. But there is one segment in which consumption does not depend on either the outside temperature or the wind speed. It is the industry.

Demand for gas from the industry, according to the European analysts, «was at constantly lowered level». In 2022 reduction to a three-year standard made 15%, in the first quarter of 2023 – 19%, in the second quarter – 21%. The freshest data concern September of the current year — minus 22%.

Besides, early so far to speak about results of the year, but conclusions arise by itself. If in the segment, most independent of external circumstances reflecting general state of the economy you have so vital issues, we will hardly see sharp restoration of demand in the near future.

European industrialists treat possibility of restoration with undisguised skepticism in the near future. And it is not axiomatic closing of productions, not in working teams which are sent on unpaid leaves, and even not in «overflow» of the enterprises on the markets with cheaper energy carriers. The matter is in lack of surplus of the offer.

The industry is well aware that as soon as it begins to increase demand for blue fuel, it will have to enter into a price confrontation with Asia. If Nord Stream had been intact, if Yamal-Europe had not been constrained by mutual sanctions, then this problem simply would not have existed. Consumers would receive all gas volumes necessary for them. And crisis would end in 2023. But Russia now cannot help completely. And the European Union leaders also resist this help (we will remember the remained thread of Nord Stream – 2).

For some, it unexpectedly turned out that there are alternative suppliers in the world only for sick Europe, where demand for energy resources is collapsing. But there are no alternative sources for a healthy (or at least recovering) Europe.

Paradox of underground storage

“But let me!” an informed reader will say. “What about European underground gas storage facilities? What risks might Europe have with record gas reserves accumulated at the beginning of the heating season? What kind of lack of alternative suppliers can we talk about?!”

The matter is that underground storages have very and very indirect relation to those risks which during an energy crisis Europe faces. For an explanation of this question we should remind that in 2019 many companies accumulating gas strongly burned in economic sense. They pumped gas in the summer at higher prices than on what it managed to be sold in the winter.

And in 2021 the same companies, looking at promptly growing prices, started being very cautious, being afraid that in the winter gas will be cheaper again, than in the summer. As a result by a heating season of 2021-2022 to the stocks remaining in UGS only 47 billion cubic meters were downloaded (20 billion cubic meters less, than selected previous winter).

In information space a subject of UGS was paid to so much attention that heads of the European Union could not ignore it. In 2021 they tried to calm the public.

The falling demand and favorable weather conditions helped the European Union. By the time of the end of a season of selection from storages 51 billion cubic meters of gas were taken. The remained active volume made about 25 billion cubic meters of gas. It is one of the lowest levels for the long-term period of supervision. Besides, it was 5.5 billion cubic meters less than in the same date of 2021.

And in 2022 the topic of underground storages became, perhaps, the only one where it was possible to show progress. Threats, arrangements and measures of the state support the European Union achieved essential volumes of downloading. But essential volumes of downloading inflated the prices at the European gas exchanges to $3 thousand for 1 thousand CBM. This gave rise to controversy about whose expense this banquet was at.

The warm winter and low demand from the industry helped Europe a lot. According to Gas Infrastructure Europe, selection from underground storages came to the end at the beginning of April, 2023. The remained volumes of active gas made 55.4 billion cubic meters. It was necessary to fill 25 billion cubic meters less than a year ago. By the way, in many respects therefore in the summer of this year it was not observed such terrible price jumps, as in August 2022.

EU countries entered the current heating season with storage facilities almost 100% full (more than 100 billion cubic meters)

At the current level of demand, this seems to guarantee a high chance of a successful winter, even if the weather decides to repeat February 2021. But we are forced to return again to the issue of the limited imported gas available to Europe, which may become even less if cold weather sweeps across all of Eurasia.

Again, this is not hype. These are risks that even the leadership of the European Union has begun to recognize.

Terrible useless mechanism

Here it is necessary to refer to the Financial Times and its sources, «Brussels considers a question of extension of period of validity of the extraordinary restriction of gas prices introduced in February against fears that the conflict in the Middle East and incident on the Baltic gas pipeline can lead to an increase in prices this winter again».

Let’s leave on conscience of authors of this statement excess attention which they pay to a thin gas transmission thread of the Baltic gas pipeline connecting two powerful powers – Estonia and Finland. But the main thought does not raise doubts: the ceiling of the prices remains. It would be worth being surprised if refused it.

But behind the formidable name lies a rather contradictory in its helplessness mechanism. It begins to operate automatically if the gas price on the exchange exceeds €180 per MW h (approximately $2 thousand per 1 thousand cubic meters) and stays above this mark for three working days continuously, and at the same time the base price of LNG on the world markets will exceed €35 per MW h. Transactions (conducted above the limit) are stopped.

If the involved mechanism starts harming to power safety of EU countries, its action stops before established periods. For example, if the liquefied natural gas starts flowing on the Asian market as there will offer more attractive price.

Only for fun it is possible to call this mechanism a price ceiling. Actually before us is an excess safety lock from long-term manipulations with the exchange auction. No more than that. In the conditions of the price competition, which is observed during all world energy crisis, it is useless.

The installed IPA

There are different fantastic Universes, for example, Universe of Star wars or Universe of Marvel and there is a Universe of the International Power Agency.
IPA works in the direction of alternative history. Therefore in the Universe of the International Power Agency crisis began not in the summer of 2021 and on February 24, 2022.
At the beginning of the current year we pleased our readers with the story about this fascinating fantastic reality. The new Medium-term report on the market of gas published in October of the current year forces us to return to this subject. IPA added new details to the fantastic Universe. However, the cornerstone of fantastic reality of the International Power Agency remained on a place.

In the report it was declared that «the beginning of the global energy crisis in 2022 caused by invasion of Russia to Ukraine opened a new era for the world gas markets after a decade of their active growth during the period from 2011 to 2021″. But there was also some development of earlier sounded theses: «World demand for gas will grow on average for 1,6% a year during the period from 2022 to 2026 in comparison with an average value of 2,5% a year during the period from 2017 to 2021″. Our country is guilty of the decreased rates, of course. Or, more precisely, its version from the alternative Universe of the IPA in which the energy crisis began in February, 2022.

It is necessary to remember that we speak not about our reality with its causes and effects but about the imagination on a subject. For the same reason, by the way, you should not criticize poor quality of forecasts of the International Power Agency. They for certain come true with absolute probability in their alternative Universe. In ours on the contrary they with absolute probability appear full nonsense.

In this regard it is not absolutely clear: we should be glad or be afflicted for the European Union. IPA notes that «high stock rates in the European Union allow showing careful optimism in anticipation of a heating season-2023/24. However there are risks which can easily renew intensity in the market. Northwest Europe will not have access to two sources which were a basis of its import of natural gas earlier this winter: to the Russian pipeline gas and a field Groningen in the Netherlands».

The European Union in the person of the management, by the way, rejoices that access to the Russian pipeline gas is limited. «The EU sharply reduced the dependence on the Russian fossil fuel: <…> there was a reduction of import of gas from 155 billion cubic meters in 2021 approximately to 80 billion cubic meters in 2022 and approximately to 40–45 billion cubic meters in 2023.
One gets an impression that the European Union has some kind of unhealthy obsession with addictions.

Continuous fight against dependence

Europe for many years fought against dependence on the Russian gas. More precisely, there was a marginal group which shouted of this fight. As practice shows, the group did not work for the benefit of European economy. Today, yesterday’s marginalized people are on horseback, they dictate the current political agenda. There is a holiday on their street. And the longer it lasts, the worse the economic hangover will be.

But Europeans saw dependence not only in the Russian gas (oil and coal). They in general are inclined to find dependences everywhere. And here we remember the French ministers from the beginning of article who forbid Chinese «sun».

The irony of the situation is that it is not the first time when in the EU want to limit access of the Chinese equipment to the market. In 2013 the European Union already entered protecting duties against the photovoltaic panels from the People’s Republic of China. Then it was allowed to deliver no more than 7 GW and everything that is over it, was subject to additional taxes. This is how they tried to save European manufacturers and restore the former leadership of the European Union in the global market for equipment for power plants operating on renewable energy sources. But neither the manufacturers nor the leadership could be saved. And then the protective duty had to be abolished.

But this does not exhaust the list of dependencies that the EU is complaining about. So, it is disturbed by dependence on supply of rare-earth metals from China (40% of import in 2022). And still disturbs potential dependence on the Chinese accumulators and electric cars.

Several years ago, analyzing cries from Europe about dependence on Russia, we noted that if the Europeans were consistent and abandoned Russian fossil fuels, they would simply exchange one so-called dependence for another. Although it would be more correct for them to talk about partnership. After all, this is the term they use in relation to other energy suppliers. But, apparently, the time has not yet come to realize such simple truths.