Winter Gas Shortages in Europe Likely to Last 3 to 5 Years, Commodities Expert Says

Wind turbines are seen near the coal-fired power station Neurath of German energy giant RWE in Garzweiler, Germany, on March 15, 2021. (Photo by Ina FASSBENDER / AFP) (Photo by INA FASSBENDER/AFP via Getty Images)

Europe, which is currently reeling under an energy crisis, could see winter gas shortages last another three years at a minimum, according to Ed Morse, global head of commodities research at Citigroup.

“It’ll be somewhere between 2025 and 2027 that we’ll see the prices in Europe coming back to where they were at the beginning of 2021,” Morse said in an interview with Bloomberg while pointing out that the capacity for liquified natural gas (LNG) exports doesn’t “grow overnight.” Europe’s current energy crisis has been triggered by Russia curtailing its natural gas deliveries to the region as retaliation for sanctions imposed on Moscow for invading Ukraine.

With the decline in Russian gas imports, reserves are likely to get used up faster in the coming winter. This will make preparing gas reserves for the next few winters an even more difficult task.

According to Niek den Hollander, chief commercial officer at German energy giant Uniper SE, many nations in Europe might not be able to fill up their gas storage sites next summer to the extent that they have done this year, thus presenting a problem next winter.

Europe’s energy ministers are due to meet on Sept. 9 to discuss the energy crisis in the region, including measures to bring costs under control, caps on natural gas prices, and even suspending derivatives trading in the power sector.

Ratings agency Fitch is expecting the European Union’s plan of boosting alternative gas supplies and reducing gas usage by 15 percent in 2023 to help avoid acute shortages on the continent.

However, the EU winter gas supply and demand situation continues to be plagued by several uncertainties, including the war in Ukraine, LNG supplies, and temperatures, Fitch stated.

Financial Worries

The gas supply crisis and resulting price surge are putting financial pressure on Europe’s economy. On Sept. 5, the Dutch TTF October gas contract rose to 272 euros per megawatt hour after Russia announced that one of its gas supply pipelines servicing Europe would remain indefinitely shut down. This is up by about 400 percent compared to a year ago.

European companies are now requesting at least 1.5 trillion euros in government liquidity to cover their margin calls.

Energy firms usually require companies to pay a margin deposit before supplying power. With gas supplies being curtailed, the minimum deposit price has surged, putting many companies in a financially difficult position.

“This has had the ingredients for a kind of a Lehman Brothers of energy industry,” said Finland’s Minister of Economic Affairs Mika Lintila, referring to the 1.5 trillion-euro plan to fund power companies.

Italy, which relies on imports for three-quarters of its power consumption, is set to see energy import costs more than double in 2022, the country’s economy minister recently said.