Europe escapes energy crisis in first part of winter

Originally published at Europe in Review on February, 2023

Helped by milder-than-expected weather, Europe has largely avoided the energy supply crisis that some predicted for the first part of winter.

Higher natural gas storage levels and increased LNG imports in 2022 – combined with a 15 percent fall in energy demand across Europe, in accordance with EU directives – helped offset the lack of Russian supplies. The latter had provided 25 percent of Europe’s energy needs by pipeline before Moscow’s invasion of Ukraine last February.

Natural gas price control impact negligible due to lower demand

The European Securities Market Authority (ESMA) on January 23 released its first monthly report on the impact of natural gas price controls introduced in December, and the impact was negligible due to an actual decrease in gas demand. [ESMA] The report on the market correction mechanism (MCM) adopted by the European Council on December 22 noted that natural gas prices at the Dutch Title Transfer Facility (TTF) averaged below EUR 65 per megawatt hour (MWh) between December 18 and January 18, less than half the price cap of EUR 145 per MWh at which the MCM will initiate action after the mechanism goes into effect on February 15.

UK suffers energy shortages

The UK energy authority, National Grid PLC, requested Britons in several areas to reduce energy consumption between 4:30 pm and 6 pm during January to reduce electricity demand and forestall possible electricity outages. [Bloomberg]

The UK receives a significant amount of energy, approximately 10 percent during the day, from European electricity imports. [UK Energy Dashboard] Approximately 50 percent of its energy is derived from natural gas pumped from UK or Norwegian North Sea fields. None is derived from Russian-sourced natural gas. However, the interruption of Russian natural gas supplies to Europe caused by Moscow’s invasion of Ukraine has meant that Europe is unable to supply as much additional power at night, when energy demand increases for households.

New infrastructure construction in the UK, as in the rest of Europe, including both new wind and solar – but also LNG import terminals to shore up baseload power capacity when renewables are unavailable – remains key to energy security. [Bloomberg]

Italy’s Eni makes North African natural gas discovery

Italian oil companyENI signed a deal valued at over EUR 7.3 billion with Libya on January 28 to develop two major offshore natural gas fields over the next three-and-a-half years and transport the offtake to Italy through its Green Stream pipeline along the Mediterranean seabed. [ENI]

Italian Prime Minister Giorgia Meloni visited the national capital, Tripoli, during the signing of the agreement to demonstrate the support of the Italian government for increasing investment in Libyan oil and gas following the interruption of Russian supplies due to the war in Ukraine. [Bloomberg]

This follows an agreement signed the previous week in Algeria to expand gas production while concurrently reducing methane emissions, also signed during a visit by Meloni. [ENI] ENI operates the undersea Transmediterranean pipeline, which is able to send supplies via Tunisia to Sicily and on into the European pipeline system.

These deals, combined with the scheduled completion of two liquefied natural gas terminals this spring, should enable Italy to reach its goal of becoming independent of Russian gas by the end of the second quarter of 2023. [Reuters] [UP]

Eni and US oil company Chevron made a joint announcement of a significant natural gas discovery in the Nargis block off the coast of Egypt. [ENI] Chevron operates the field, as well as the adjacent Leviathan field in Israeli waters. Commercial diplomacy continues, but the American government has articulated a preference for regasification and export as LNG, which will be a faster process than the estimated decade needed to build a deep-water pipeline to Europe. [TI]

The addition of new North African energy supplies to augment the main current non-Russian pipeline gas suppliers to Europe, including Algeria, will position North Africa to supplant Russia as well as the other main piped natural gas suppliers to Europe – Norway and Azerbaijan – in the coming years.

Algerian President Abdelmadjid Tebboune announced plans in December to double Algerian exports to Europe in 2023 to reach 100 billion cubic metres a year, roughly equivalent to present imports from Norway. [NGI] [NP] [GoA]

Germany’s RWE expands coal production, gov’t mulls extension of nuclear power

Leading German utility RWE has demolished the western village of Lützerath in Germany to enable the expansion of a coal mine. [LeMonde] [RWE] The coal will be used to provide fuel for coal baseload power plants due to operate through 2030, at which point technological advances in energy storage or baseload power alternatives such as new natural gas or hydrogen plants are projected to replace them, according to the government.

Current technology is able to remove over 99.9 percent of chemical pollutants harmful to humans emanating from coal power production, but the carbon released by coal combustion must be stored to make this form of energy production carbon-neutral.

German Vice-Chancellor and Federal Minister for Economic Affairs and Climate Action Robert Habeck showed initial support for carbon capture, utilisation and sequestration (CCUS) technology through a visit to the Brevik project in Norway, which stores carbon produced during cement production. [PE] [HM] The project is operated by German company Heidelberg Materials.

Terje Aasland, Norway’s minister of petroleum and energy, and Jan Christian Vestre, Norway’s minister of trade and industry, accompanied Habeck on the visit to Brevik, the first major CCUS project in Europe. This may herald a wider examination of CCUS should the planned full transition from coal over the coming decade prove problematic.

Germany has Europe’s largest wind energy installed capacity – at 66 gigawatts (GW) – and the largest installed solar supplies, also at 66 GW, and approximately 40 percent of German electricity was derived from renewable energy sources in 2022. [DIW]

Current German plans are to raise this to 80 percent by 2030. [Reuters] However, the country must have the capacity to replace these intermittent sources of renewable energy with the steady provision of baseload power supplied by natural gas, nuclear, and coal power plants, which operate regardless of weather conditions or sunlight availability, in order to maintain a guaranteed continuous power supply.

Coal accounts for 28 percent of German energy production, natural gas 15 percent, and nuclear 12 percent. [DS] German government policy is to end nuclear power production in April and coal production by 2030. [RWE]

RWE and Norwegian utility leader Equinor signed an agreement on January 5 during the German government visit to create “blue” hydrogen from natural gas. This is to be transferred through hydrogen pipelines to Germany and used in natural gas power plants equipped to operate with either gas or hydrogen. [DW] The reported medium-term plan is to transition from natural-gas-produced blue to renewable-energy-produced green hydrogen from wind and hydropower facilities in Norway.

Germany may also be re-examining its plans to abandon nuclear power. German Transport Minister Volker Wissing called for a commission to examine prolonging the operation of Germany’s three operating nuclear plants past their currently scheduled April shutdown in order to ensure “stable and affordable” energy supply – implying support for indefinite extension. [Reuters]

European energy transition away from Russia

Previous dependence on Russia for natural gas supplies caused disruption to European energy markets in 2022 as the war in Ukraine resulted in an abrupt, unplanned energy transition. This caused unprecedented natural gas prices during the past year. But a fall in prices since record highs in August – reached when Russia announced it would temporarily end gas shipments through the Nordstream pipeline – indicates that the energy market has stabilised, at least temporarily.

Increased pipeline natural gas flows from Norway and North Africa, combined with increased LNG imports from the US, the Middle East and Australia, should enable European leaders to successfully manage an energy transition away from Russia during the remainder of the winter, barring a severe weather event.

(rw/pk)