Winter Looms, Gas Supplies Tighten as Russia Turns Screw

October 17, 2022

Frack more, they said. We’ll be energy dominant, they said.
So we did. And we’re still being blackmailed.

We don’t have to keep doing this.

Wall Street Journal:

Europe is as ready as it can be for a winter without Russian natural gas, but there is no margin for error. 

Storage facilities of gas for heating and power generation are almost full, consumption is down and liquefied-natural gas tankers are steaming in. Europe in a stronger position than feared in recent months, after Moscow slashed gas deliveries in retaliation for Western sanctions over the invasion of Ukraine.

However, much could go wrong. One long cold spell or a busted pipeline could upset the region’s preparations, threatening emergency rationing, blackouts and a deeper economic recession. Officials and analysts say the willingness of consumers to cut back on gas use will be key for getting through the winter. A mild winter would help too. 

“This will be a winter dominated by fear and uncertainty,” Roberto Cingolani, Italy’s minister for energy transition, said. “Barring catastrophes, such as extremely cold weather, if we keep consumption in check, we’ll get through the winter fine. We just have to hope nothing goes wrong.”

Europe is on the front line of the energy conflict running in tandem with the war in Ukraine. Since launching its full-scale invasion of Ukraine this year, Russia has throttled gas supplies in what European officials say is an economic attack designed to weaken their financial and military support for Kyiv. Europe, in turn, is targeting Russian energy revenues with a looming embargo on oil imports.

By buying as much LNG as possible from countries such as Norway and the U.S., Europe has filled storage sites to more than 90% of capacity. Russian gas arriving via pipeline accounts for 6% of the continent’s gas supply, according to S&P Global Commodity Insights, down from almost 30% before the war. Europe also imports a small amount of Russian LNG.

Floating LNG terminals are being moored off European coastlines, which will enable countries including Germany to unload and store more of the superchilled fuel. EU members have expanded cross-border connections, for instance between Poland and Slovakia, so that gas doesn’t get stuck in one country when it is needed in another.

Europeans are also cutting their energy use—a necessary step to prevent shortages later in winter, officials say. Where they can, companies in industries such as glass and papermaking have turned to coal and oil, or changed shift patterns to avoid using power when demand is at its peak. Some factories have closed. Power producers are burning more coal.

Some indication that gas users are cutting back, but cold months still ahead

Houston Chronicle:

The amount of natural gas in storage is increasing at a fast pace, as utilities try to build stockpiles ahead of what is expected to be a spike in gas prices this winter.

Natural gas inventories increased by 16 percent to 3.2 trillion cubic feet over a one-month period ending in early October, according to data released by the U.S. Energy Information Administration this week.

But it’s not enough to prevent an increase in natural gas prices this winter, with government officials predicting households that rely on natural gas will spend 28 percent more to heat their homes this winter compared to last year.

“Higher forecast energy expenditures are the result of higher fuel prices, combined with higher heating demand because of a forecast of slightly colder weather than last winter,” the EIA said in a report. 

Driving the price increase is lower-than-expected inventories of natural gas going into the winter season.

Gas storage sites are typically filled from April to October in preparation for the upcoming increase in demand during winter. And despite the recent increase in storage, inventories are expected to be 6 percent below the five-year average at the end of this month.

“U.S. natural gas inventories began this injection season at the lowest level in three years because of high heating demand in January and record LNG exports,” EIA said.

Government officials predict natural gas prices will spike in January to $7.70 per million British thermal units — almost 20 higher than current prices — before falling to $6.50 in March.

Natural gas is the nation’s most common fuel used to generate electricity, according to the Energy Department.

U.S. natural gas prices have typically ranged from $2 to $4 per million British thermal units, but as economies recovered from the pandemic and demand grew, the price started to rise. When Russia invaded Ukraine in February, the price skyrocketed to near $10, a 14-year high, as European countries sought to replace Russian sources of natural gas lost to sanctions.

The price has since declined to around $6.50 per million British thermal units. 

Markets Insider:

Beijing has reportedly told state-owned natural gas importers to halt resales of cargoes to buyers in Europe and Asia, to make sure China has enough supply for domestic needs this winter.

The National Development and Reform Commission has spoken to Chinese energy giants PetroChina, Sinopec and CNOOC to ask them to stop the shipments of liquefied natural gas, Bloomberg reportedMonday, citing people with knowledge of the matter.

An economic slowdown in China after Beijing imposed a strict zero-COVID policy dampened local demand for gas, leaving its importers with a surplus of natural gas that they resold to Europe and elsewhere

They threw a lifeline to Europe amid its energy crisis by reselling unneeded LNG purchased from Russia. In August, an estimated more than 4 million tons of Chinese LNG was resold — or roughly 7% of Europe’s imports in the first half of the year — according to a Nikkei report

Since the Ukraine invasion, China has been snapping up Russian fuel on the cheap, after sanctions and boycotts hit the Western market. At one point, China managed to get a 50% discount on LNG supply from Russia’s Sakhalin 2 export plant.

But with European gas inventories quickly filling up and shipping costs at record highs, the appeal of the LNG resales dimmed, per Bloomberg.

Another potential trigger for the move were forecasts for a small deficit in China’s gas supply, the report said, as the country looks to avert its own potential energy crunch during winter’s cold months.

Countries like Germany are on track to hit their winter gas inventory targets, after appealing for consumers to cut usage and scrambling to secure alternative supplies to those cut off by Russia.



One Response to “Winter Looms, Gas Supplies Tighten as Russia Turns Screw”

  1. rhymeswithgoalie Says:

    “U.S. natural gas inventories began this injection season at the lowest level in three years because of high heating demand in January and record LNG exports,” EIA said.

    That’s why the US disallowed natgas exports for so long, and why the US gas producers lobbied so hard for it, of course.

    As has been pointed out here before, what with the chronic leakage problem of natgas extraction and export, along with ultimate combusion, natgas is as bad for climate as burning coal.

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