Media: Europe faces new energy crisis

Europe is on the brink of a new energy crisis, with rapidly declining gas reserves and the threat of further supply cuts from Moscow, following the shocks of two years ago.

Rising tensions in Ukraine have driven gas prices up by roughly 45 per cent this year. Although prices remain well below 2022 highs, they are still elevated enough to worsen the cost-of-living crisis for households and put additional strain on struggling manufacturers, Caliber.Az reports via foreign media. 

Gas storage is crucial during the coldest months, but this year, inventories are quickly depleting due to higher heating demand from colder temperatures and reduced wind power generation. Over two years after President Vladimir Putin weaponized energy, Europe is still grappling with securing its energy system. The tight market highlights the continent's struggle to fully transition away from Russian fossil fuels. The situation is set to worsen, as gas supplies that helped replenish reserves in 2024 are expected to be unavailable next year, further tightening price pressures. 

Russia’s war on Ukraine is intensifying, with both sides launching missile strikes this week in a bid to gain the upper hand ahead of Donald Trump’s potential return to the White House. In response to rising tensions, the US has sanctioned Gazprombank, the last major financial institution previously exempt from penalties and responsible for processing payments for Russian gas. The sanctions are designed to deprive the Kremlin of revenue from energy exports but also heighten the risk of a shutdown of the natural gas still flowing to a few central European countries. While Europe has reduced its dependence on Russia, analysts at Energy Aspects warn that losing one of the last remaining pipeline gas routes would put additional strain on the gas market and drive global prices higher. 

Europe was already preparing for the potential end of Russian gas flows through Ukraine when the transit agreement expires at the end of the year. However, the sanctions could halt the gas flow even sooner, with Hungary warning that its energy security is at risk. Prices are reflecting the likelihood of losing a significant portion of the remaining inexpensive Russian gas, delays in additional liquefied natural gas (LNG) supplies from the US, and the threat of a cold winter. In an unusual sign of strain on the system, summer gas prices, typically lower for storage replenishment, are now more expensive than winter prices. 

This suggests that energy costs will remain high for an extended period, and as storage levels decrease this winter, the task of refilling reserves will become more challenging. During the peak of the energy crisis in 2022, Germany implemented mandatory rapid gas purchases from the global market at record prices to fill storage. To recover some of these additional costs, Berlin introduced a gas-storage levy, paid by traders or utilities for deliveries through Germany. 

This levy has faced strong criticism, as it increases the cost of LNG for landlocked countries like Austria, Slovakia, and the Czech Republic. In the winter of 2022, Europe avoided shortages, partly due to a mild winter. This year, the risk of energy rationing is low, with LNG shipments arriving due to higher prices compared to Asia. However, a cold winter elsewhere could intensify competition for supplies, further driving up prices and potentially creating challenges for the region.

By Naila Huseynova