IEA Warns Of Winter NatGas Crisis If Russia Cuts Supplies

Natural gas stockpiles in Europe are plentiful, exceeding the five-year average for this time of year. The continent’s storage is poised to reach full capacity earlier than anticipated, providing governments and companies with reassurance that last year’s energy crisis may be unlikely to repeat. However, a new report cautions that the threat of a severe winter and potential interruptions in Russia’sNatGas supply to Europe still poses significant risks. 

“While market fundamentals have significantly eased since the start of 2023, and the European Union is well on track to fill up its storage sites to 95% of working capacity, full storage sites are no guarantee against winter volatility,” the International Energy Agency wrote in a report Monday. 

“Our simulations show that a cold winter, together with a full halt of Russian piped gas supplies to the European Union starting from 1 October 2023, could easily renew price volatility and market tensions,” IEA said. 

IEA’s warning comes after the second winter of reduced NatGas flows from Russia. Before the Ukraine invasion, Russia was the leading supplier of petroleum oils and NatGas to the EU. A major diversification of suppliers has been underway ever since, according to think thank Bruegel. 

Here are the top NatGas import routes into the EU and LNG routes. 

In a note to clients earlier this month, Morgan Stanley said dwindling NatGas supplies from Russia means the EU is more reliant on not just LNG exports from abroad but also domestic renewable energy. If Europe encounters a deep freeze and solar and wind don’t offset a surge in power demand, then TTF, Europe’s benchmark gas price, could surge to 100 euros a megawatt-hour. 

IEA also noted a scenario where there is a warm winter, and LNG flows remain close to last year’s highs, then “storage sites would end the heating season with inventory levels above 50 percent of capacity even without Russian piped gas.” 

“Continued structural gas demand reductions” such as energy-efficient heat pumps “will be required to ensure a secure gas balance for the 2023/24 winter,” it added. 

* * * 

Here’s the full report: