Europe has been able to fill its storage tanks and maintain an adequate capacity for the moment. Disruption of flow from Russia, however, will offset the current supply from the United States and lead to significant inventory deficits in 2023.
According to Bloomberg analysis, there are two issues pertaining to U.S. supplies. One is the limited amount of supply, which is not expected to grow much in the next few years. Second, the fact that energy majors and traders have secured most of the country’s exports of liquefied natural gas (LNG) and largely locked in future supplies. This means they can sell the supplies to whoever pays the highest, which could mean China, as the nation rises from COVID-19 lockdowns and economic restrictions.
For Europe to remain an attractive market for traders, it needs to pull about 70 percent of global spot supplies, mainly from the United States.
“U.S. supply is particularly price sensitive and will flow to the premium market, which Europe will remain unless Asian demand picks up,” Bloomberg analyst Arun Toora said, according to the outlet. “However the year-on-year increase is not sufficient to offset a total cut in Russian piped supply with under half of these volumes met by LNG increases.”
The United States has now become the top LNG supplier to the European Union and the United Kingdom, and sends about 60 percent of its supply to the region.
As the heating season of winter approaches, Europe has managed to fill its gas supply storages to 93.8 percent capacity, exceeding its Nov. 1 goal of 80 percent ahead of time. Refilling the tanks next year without Russian gas, though, remains a challenge.
Considering that 43 percent of gas can go anywhere according to contracts, if Europe imports 60 percent of spot LNG, it will fall behind and only manage to refill capacity to below 70 percent by the end of summer, according to Bloomberg analysts.
European Gas Suppliers
The pace of gas exports from the United States to Europe increased rapidly after the Russian invasion of Ukraine. Europe imported 83 percent of its natural gas last year.
Until the second half of 2021, Russia accounted for nearly 50 percent of gas imports into the region. By August 2022, that number was reduced to 17.2 percent, while imports from other countries went up to 82.8 percent.
For the first half of 2022, Norway covered over 22 percent of gas imports into Europe, Algeria over 10 percent, along with LNG imports of over 25 percent from the United States, Qatar, and Nigeria.
Russia supplied 155 billion cubic meters (bcm) of gas to Europe before the war. U.S. LNG imports increased from 22 bcm in 2021 to almost 40 bcm from January to August 2022.
The 27 member countries within the European Union consumed 412 bcm of gas last year, mainly for household heating and industrial processes. More than 30 percent of European homes use gas for heating.
Besides the regular suppliers, Europe is also exploring options of importing gas from other countries.
While Norway has been raising production capacities to meet European needs, southern, central, and western regions can import gas from Azerbaijan.
“In the coming years, we will at least double the production and export to Europe. We have the resources,” Azeri President Ilham Aliev told reporters last month.
Via the Trans-Adriatic pipeline, 8 bcm of Azeri gas was brought into Italy. Azerbaijan is planning to increase European imports by 40 percent, to 11.2 bcm in 2022.
Faced with the unprecedented energy crisis, European countries have planned on reducing the overall use of electricity by at least 5 percent during peak hours, capping revenues of electricity producers, and securing a solidarity contribution from fossil fuel businesses.