Europe tries to avoid a new energy crisis this winter

Europeans faced pricey energy expenses last winter as the continent swiftly weaned off Russian gas. The EU is better prepared for winter 2024, but the Israel-Hamas war threatens to destabilize its energy markets.

The conflict threatens to sever Europe’s ties to the Middle East or perhaps to bring Iran into direct confrontation with Israel and its Western allies. While markets are now reasonably calm, each scenario might generate chaos.

Threats that may cause energy crisis

Fighting in Gaza, and to a lesser extent along Israel’s northern border with Lebanon, has had little effect on oil markets. Prices initially climbed in response to news of the Hamas militant strike on October 7 and Israel’s vital response, but leading crude benchmark Brent fell by 4.2 per cent this week to approximately $81 per barrel, close to pre-violence levels.

The conflict had a more direct impact on petrol markets. While Israel produces relatively little natural gas — roughly 21 billion cubic metres last year, compared to Russia’s 618 billion — it is an essential exporter to Egypt, and the interruption exacerbated the country’s chronic rolling power shortages. The flow has since restarted but in reduced amounts.

Any escalation with Iran might impact gas and oil markets, as the Strait of Hormuz transports one-third of the world’s liquefied natural gas and one-sixth of its oil.

EU attempts to prevent a possible crisis

In recent weeks, EU officials have met with oil-producing states, both old friends like Norway and new partners like Algeria and Nigeria, to prepare for potential delays.

European Commission member nations collectively reduced their natural gas use by about 20% in the run-up to last winter, with industry decreasing output and renewable energy playing a more significant part in electricity generation. 

Despite this, consumption increased in October for the first time since the beginning of the conflict, indicating that firms may be hesitantly attempting to regain lost production.

Even though the EU’s gas reserves are more than 99 per cent full ahead of plan, prices on the continent have remained stubbornly high compared to other countries. 

That means Europeans are more vulnerable to short-term increases in energy prices, with businesses potentially needing to slow down again if bills become unsustainable.

EU reduction of Russian gas consumption

Gas consumption in Europe typically ranges between 450 and 500 bcm per year. Before the Russian war started, Russia exported over 150 bcm of gas to Europe annually. Still, that number fell to 60 bcm in 2022 and is projected to decrease to 25 bcm this year via the last remaining pipelines that pass through war-torn Ukraine and Turkey.

In 2022, Europe purchased a record 130 bcm of LNG, a 60% increase over the 80 bcm it imported in 2021. New liquefaction projects in the US and Africa will likely contribute significantly to the projected 23 bcm growth in global LNG production this year.

Eurobarometer conducted a survey in the last week of August in all EU member states on how the EU handled the energy crisis related to the Russian invasion of Ukraine and the halt of Russian gas supplies. 

According to the results, over 80% of Europeans believe that the EU-level initiatives to mitigate the impact of high energy prices in 2022-23 are essential and support further reducing dependence on Russia and using resources more efficiently.