The worst has not happened. At least not yet. With winter well underway, Europeans have not been forced to sleep wrapped in their coats for lack of energy to heat their homes.
In fact, the exceptional mildness that the European continent is experiencing is reducing stress in the countries most affected by the end of Russian gas deliveries. Autumn and the beginning of winter were abnormally mild in most countries.
This weather anomaly may be good for a population that feared spending the winter in the dark, but it does not rule out the need to prepare for all eventualities, which the member countries of the European Union did this fall.
Together, they have agreed to reduce their natural gas consumption by 15% from August 2022 until March 2023 to save their reserves.
The results of this call for energy sobriety are for the moment higher than the objective. According to Eurostat, the European statistics agency, gas consumption in the member countries of the Union fell overall by 20.1% between August and November compared to the average for the same months of the previous five years.
Some countries show even greater reductions, such as Finland. Even France and Germany, the two largest economies in the Union, performed better than the target. The most recent data indicate that this downward trend is continuing. France, for example, recorded a 12.2% drop in its natural gas consumption in December compared to the same month of normal activity, before the pandemic.
The reduction in energy consumption has contributed to a drop in the market price of natural gas, which has returned to its level before the start of Russia’s invasion of Ukraine, after having reached stratospheric levels l ‘last summer.
Despite the circumstantial help of the weather, the reduction in consumption did not happen by itself. We have heard of French bakeries that are no longer able to make their activities profitable due to the rise in the cost of energy, but efforts to reduce energy consumption have had an impact on the economic activity of the whole continent. Factories have closed, others have reduced their production, businesses have declined or have disappeared altogether. Government budgets have been greatly burdened by the aid granted to mitigate the impact of the increase in energy prices for the population.
According to the International Monetary Fund, half of European countries are likely to sink into recession this year. Even Germany, the largest economy in Europe, may not escape it. And there will be long-term damage. Companies like Volkswagen, for example, are making plans to relocate production to countries where energy is available and cheaper.
The worse is yet to come
Like the mild weather this winter, the current lull on the gas price front may be temporary. Even if the war ends, the flow of natural gas from Russia to Europe is cut off and unlikely to be restored. Last summer, Europe was able to rely partly on Russian gas to build up reserves. Deliveries of Russian gas gradually decreased and ceased completely in the fall.
This summer, without Russian gas, filling reserves in anticipation of the coming winter will be more difficult, if not impossible.
Massive investments in the port infrastructure needed to receive liquefied natural gas from Qatar or the United States are underway. Germany, for example, received its first delivery of US LNG to its new North Sea terminal in just nine months. Six other similar facilities are in the plans. This shift to LNG will take time to materialize, just as it will take time to deploy enough renewable energy to take over from gas.
It is not too early to prepare for next winter, warned in November the International Energy Agency1.
Its report points out that two of the factors that have helped Europeans get through the winter this year, Russian gas supplies for part of 2022 and the drop in demand for LNG from China due to the paralysis of its economy by COVID-19, will not be there this year. The crisis has not disappeared, it is only postponed.