Hard Cold Awaits As Europe May Want Interim Coal, Oil Power

To combat the energy market turmoil that has become “especially perilous,” European leaders should reduce their use of gas in the power sector, momentarily increase their use of coal and oil, and accelerate their use of low-carbon sources, according to the head of the International Energy Agency (IEA), who spoke on July 18.

Fatih Birol, IEA Executive Director, stated that he is extremely concerned in the months ahead. Even while Europe has made significant strides toward diversifying its gas supply, Birol noted that these efforts, primarily on the demand side, have not been sufficient to stop Europe from currently finding itself in a very delicate situation.

Russia’s most recent actions to significantly restrict natural gas exports to Europe, along with other recent supply interruptions, are a warning sign for the European Union. They are beginning to understand what Russia might do eventually as next winter draws nearer. He predicted that the next few months would be crucial.

Europe’s Situation Is Especially Unsafe

Birol’s appeal comes after Russia stopped all Nord Stream 1 traffic on July 11, citing annual maintenance that is anticipated to extend until July 21. Nord Stream 1 is the largest single pipeline connecting Russia to Europe. The Portovaya Compressor Station’s Siemens Energy gas turbine’s delayed return was the reason given by Gazprom, the firm that holds the control on Russian gas pipeline exports, in June for cutting flows up to 40% of the pipeline’s 55 billion cubic metre (bcm) capacity (CS). According to Gazprom, the CS plant is critically important to the Nord Stream gas pipeline.

The turbine is being serviced by Siemens Energy in Montreal, Canada. On July 9, Jonathan Wilkinson, Canada’s Minister of Natural Resources, stated that his country was mindful of the propaganda arms used by the Russian government to muzzle dissent among Allies. Nevertheless, he stated in a tweet that after speaking with European organisations, such as the IEA, Canada would give a time-limited and revocable authorization for Siemens Canada to allow the return of the fixed Nord Stream 1 turbines to Germany.

In a tweet on July 16, Gazprom stated that it has formally contacted Siemens with a request for papers that would be required, given the existing sanctions imposed by Canada and the EU, for shifting the gas turbine engine for the Portovaya CS back to Russia. Media reports on July 18th indicated that the gas turbine was travelling to Russia, while Siemens Energy or Canadian authorities have not acknowledged any movement.

But on July 18th, Birol expressed scepticism about the restoration of gas flows. According to him, Russia has already severely decreased the flows going via Nord Stream in June, and it is still uncertain whether they will resume and, if so, at what level, after July 21. According to him, that creates a serious vulnerability.

A Few Scenarios, None of Them Simple

Let’s consider a circumstance in which gas streams through Nord Stream come back after July 21 to the low concentrations they were at before the existing halt, but at the outset of the cold weather heating season on October 1, Russian energy supplies to Europe are totally cut off, Birol said. To comprehend the challenge Europe faces, let’s consider this scenario. To get over the upcoming winter, the EU ought to have loaded its gas warehouses to well above 90% of their potential by that point. And even then, there’s still a chance that supply problems will arise at the end of the heating season.

But according to Birol, the scenario will be far more difficult and challenging if Russia entirely cuts off gas imports before Europe can increase storage levels by up to 90%. That’s not absurd, but he claimed that by going forward with that plan, Russia could forego the cash it receives from supplying gas to Europe in order to gain political leverage. According to him, Russia’s oil and gas export earnings to Europe have increased by a factor of two since its incursion into Ukraine.

However, Birol said that for the time being, Europe’s attempt to reach a 90% storage level may still be feasible, adding that Europe needs to take action now and make each remaining day count. He stated the first urgent step would be to reduce Europe’s existing gas usage and store the gas that was saved. Some of this is already taking place as a result of the exorbitant petrol prices, but more is needed. To get Europe ready for the upcoming harsh winter, substantial additional reductions are required, he said. Over the next three months, the IEA estimates that Europe will need to conserve at least 12 million bcm, or enough to load around 130 liquefied natural gas- LNG tankers.

While this is a substantial request, it does not overstate the scope of what is required or what is feasible provided the proper steps are taken. According to Birol, it is obviously insufficient to solely rely on gas from non-Russian sources since these supplies are just not offered in sufficient quantities to make up for lost shipments from Russia.

Five Specific Steps

In order to increase readiness, Birol continued, the IEA had discussions with European leaders at the G7 Summit in Elmau, Germany, and the European Union (EU). Five specific initiatives have been highlighted by the IEA that European leaders must adopt, according to him, for a more concerted, EU-wide effort to prepare for the approaching winter.

Among these is the implementation of auction platforms to encourage a decline in sales from EU industrial gas users. According to Birol, industrial gas customers can provide a portion of their contractual gas supply as demand reduction products in exchange for remuneration, which can result in increased efficiency and a competitive bidding process. In Germany and the Netherlands, auction mechanisms are already being explored and suggested. He said that governments ought to take steps to encourage households to reduce their electricity consumption.

According to Birol, Europe should continue to increase the deployment of renewable energy sources and nuclear power, where appropriate, in addition to increasing its momentary coal usage and oil production. However, European leaders must also improve communication between gas and power operators regarding strategies like peak shaving. Furthermore, he added, European institutions must coordinate emergency preparations, including supply restrictions and solidarity mechanisms.

The European Union will be in a very vulnerable situation and may have to deal with even more severe cuts and encroachments in the future, according to Birol. This winter may turn out to be a crucial test of European unity, one that it cannot afford to squander, with ramifications that go far beyond the energy industry. Europe may be required to demonstrate the full power of its unity.