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The heating season has begun in Europe, and gas prices immediately hit the alarming mark of 100 euros per megawatt-hour. That's three times more expensive than last year, promising Europe's toughest winter since 2022, when Vladimir Putin orchestrated an EU gas blockade following Russia's invasion of Ukraine.
This time the crisis is caused by Donald Trump's war with Iran, and experts warn that even if peace reigns immediately in the Middle East, Europeans will have to overpay for electricity and heat well into next winter.
Because of the Iranian war, European gas consumers have already shelled out an additional 33 billion euros for the previous volume of gas this year, the EU energy agency ACER has calculated. And winter has not yet begun.
“Even under the most optimistic scenario that the conflict ends by the end of the year, we estimate that gas prices will unfortunately continue to rise,” said Wood Mackenzie chief European gas market analyst Tom Marzek-Manser.
Gas in the EU is burned all year round at power plants and industrial enterprises, it is used to make fertilizers and chemicals, and in winter it is used to heat it. Therefore, from November to March prices are always higher and the EU relies on stocks in underground storage facilities.
This time, because of the war, gas was expensive in the summer, and by the beginning of the heating season, the storage facilities were only 75% full. A little less than 80 billion cubic meters have now been accumulated there. For comparison: in the two previous winters, the EU burned 60-66 billion cubic meters of reserves.
Even if the coming winter turns out to be warm, by spring the storage facilities will be empty, which means that next summer they will have to be replenished on a larger scale than usual. Europe will need an additional 10 billion cubic meters to fill storage facilities to 80%, as this year, and 20 billion to fill 90%, as the European Commission requires, analyst Jack Sharples from the Oxford Institute for Energy Studies (OIES) calculated.
As a result, prices will remain high next summer, which promises the EU at least another year of increased costs for light and heat.
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We already went through all this in the winter of 2022-23, when Russia turned off the gas to Europe after the invasion.
“And here we go again. It’s surprising and, frankly, quite unpleasant that we found ourselves in a similar situation so quickly again,” said Henning Gloystein, leading global energy expert at Eurasia Group.
“We're going to have to go through this vicious cycle for another year, and the economy will have to suffer for another year with higher gas prices,” Gloystein said on the Montel podcast. “So we will have high bills for electricity and heat for another year or two.”
Why is there not enough gas?
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With storage supplies insufficient for a cold winter, Europe will have to increase purchases of liquefied natural gas. And he is missing because of the war in the Persian Gulf, where Qatar is trapped.
Before the war, Qatar supplied 20% of all liquefied gas to the world market. The blockade of the Strait of Hormuz has led to a deficit of almost 50 billion cubic meters. Things could have been even worse if other countries had not increased supplies by 36 billion thanks to the expansion of gas liquefaction capacity. The war profited primarily from the United States (they sold 14 billion cubic meters more), Canada (+7 billion) and Russia (+5 billion), according to ACER.
And the supply of liquefied gas will continue to grow. It was expected even before the war, and if Donald Trump had not started a war with Iran, there would now be a surplus of fuel in the world, and prices would be decidedly lower.
However, even a large-scale commissioning of new capacities this year will not bring relief to gas importers without lifting the blockade of Hormuz, experts say.
Europe will need to buy 96 billion cubic meters of liquefied gas this winter (almost twice as much as last winter) to prevent stocks in storage facilities from falling below the critical level of 30%, warned the European network of gas transmission system operators ENTSOG.
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This will not be easy, since last year the EU received about 15% from Russia. And this winter, he completely abandons the import of Russian liquefied gas from January 1.
The EU will again have to increase its dependence on the US, which already provides more than 60% of all European LNG imports and about 30% of total European gas consumption. And also hope that the new announced projects will be put into operation, and the old ones will continue to work without interruption.
Even then, gas will remain in short supply, warns the International Energy Agency (IEA). New projects will provide an additional 18 billion cubic meters this winter, while existing projects - primarily in Russia, Nigeria and Oman - will increase supplies by another 3 billion.
“Despite this strong increase in supplies, they do not compensate for the loss of Qatar,” the IEA said in its latest gas review. “Depending on how the Hormuz blockade develops, the global supply of liquefied natural gas in the winter period from November to March will be reduced by 10–25 billion cubic meters compared to last year.”
This means that prices will remain high at least until the summer of 2027, the IEA predicts.
It's not all bad
To prevent already high prices from rising even more in the face of gas shortages, Europe will have to either reduce consumption or wait for weather by the sea.
“There’s good news here,” said Anouk Honoré from Oxford’s OIES Institute. “Super El Niño promises warmer, windier and rainier weather for Europe.”
A mild winter will reduce demand for gas for heating, and wind will allow less gas to be burned to generate electricity. Rain is also helpful: after a dry summer, the level of reservoirs and rivers in Europe is extremely low, which reduces the production of cheap electricity at hydro and nuclear power plants and increases dependence on expensive gas.
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The autumn has already turned out to be mild, and if this continues, with a successful combination of circumstances, Europe will save 10-12 billion cubic meters in the winter, said Anouk Honoré.
And even though gas reserves will be depleted by spring, and prices will remain high for another year, Europe will survive this winter without interruptions in supplies to consumers, both Gloystein from Eurasia Group Henning and Sharples from OIES are confident.
And then Europe can hope for a respite from the energy crisis, even if the war in the Persian Gulf does not end, promises another Oxford Institute expert, Bill Farren-Price.
OIES has modeled the scenarios, and even with the worst of them - maintaining the blockade of Hormuz until the start of the next heating season - prices will not go above the 100 euros per megawatt hour reached last week, and certainly will not jump to more than 300 euros, as at the height of Russia's gas war with the EU in August 2022.
And from the spring, gas will gradually begin to become cheaper, and prices will continue to decline due to increased supplies to the market from the USA, Canada and other countries outside the Persian Gulf, Oxford experts predict.
“All things being equal, lost Qatari gas will be fully compensated by the end of 2028,” Farren-Price said.
“If the loss of Hormuz is seen as an isolated problem, the market will eventually deal with it,” he added. “But if we take it as a sign that from now on we live in an unstable world, where unpredictable troubles systematically happen to the energy sector, then in this case we will face more and more new problems.”
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