No easy answers to Europe’s gas crisis

LNG can’t replace Russian gas

(Image credit: © Getty Images/iStockphoto)

published 28 January 2022

“The European energy crisis is not over yet,” said Goldman Sachs in a research note this week. The bank’s analysts think that gas prices could remain twice as high as normal until 2025. British wholesale gas prices, which are heavily influenced by Europe, are currently about four times higher than they were a year ago, at 218p a therm. An escalation in Ukraine could see prices top their highs of last December.

It might not come to that, says Bloomberg. Germany, which is highly dependent on Russian gas, has long argued that Moscow is a reliable supplier: it “kept sending gas to Europe all through the Cold War” and during the 2014 Crimean annexation. Russia is thought to be unlikely to want to damage that reputation. It is also economically dependent on the revenue from energy sales. Still, if the US throws Russia off the Swift payments system then energy transactions could become impossible. Nord Stream 2, a new energy pipeline to Germany that bypasses Ukraine, could be hit by new sanctions. Finally, a war could damage key Ukrainian pipelines that deliver gas to the West.

Liquefied natural gas (LNG) cargoes have been diverted from Asia to Europe in response to soaring prices, but LNG is no silver bullet, says Deutsche Welle. EU gas storage facilities are just 47% full, compared with a more normal level of 60% at this time of year, according to a report by Commerzbank. If Russian supplies are disrupted, “LNG would not be able to fully compensate”. There is “a lack of free short-term capacity among exporters such as the US and Qatar”. If things get very tight then governments may be forced to “ramp up coal power stations… environmentalists will not like that… but that really is the only possibility in the short term”.