The Russian invasion of Ukraine is taking a huge toll on the European Union. According to a report prepared by the Agency of European Energy Regulators (ACER) to which elEconomista.es had access, filling natural gas storage facilities has cost 50,000 million euros, eight times more than the historical average.
The fear of supply problems due to an interruption in the flow of gas from Russia, the paralysis of French nuclear power stations and the drought have caused a historic rise that has been felt especially in production costs for industries -which has already been reflected in their demand- and in the prices paid for electricity.
The acceleration forced by the European Commission to reduce the weight of Russian gas imports has notably benefited some exporting countries such as the United States and Norway, which have seen their income rise considerably.
The global tensions that followed the invasion caused strong volatility in the energy markets throughout the year, especially in August. This was compounded by the progressive cutback in Russian gas flows - until then accounting for 40% of Europe's imports - which culminated in the sabotage of the Nord Stream 1 and Nord Stream 2 pipelines at the end of September and left the level of imports from Russia at a meager 9%.
Europe's efforts have been focused on stockpiling gas to cope with this winter, but with an eye on the real concern which lies in supply for 2024.
Europe has accelerated talks with countries such as the United States, Norway, Azerbaijan, Israel and Algeria to try to expand alternative sources of supply to Russia.
The Commission has approached these countries to offer significantly lower prices to prevent them from being able to further exploit the impact of the Ukrainian invasion.
To achieve this, Brussels is launching a joint gas purchasing platform that aims to centralize purchases in a way that increases European bargaining power and reduces the level of speculation.
As the report presented by ACER points out, the EU reached record imports between April and October, 56% more than in the same period of previous years, by contracting cargoes at a higher price than other world buyers.
This acceleration has allowed the EU to fill its tanks above 95% months ahead of schedule. However, the goal now will be to reach next March with reserves of at least 40% capacity to more easily replenish the level of reserves by 2024.
"If gas storages are fully depleted during winter 2022-2023 and/or not sufficiently replenished in summer 2023, Europe could face demand reductions in winter 2023-2024," the European agency's report warns.
"Factors such as increased gas demand (due to cold weather and unmet demand reduction targets), full disruption of Russian supply and higher volumes of liquefied natural gas diverted to Asia are of concern," it details.
In the first half of 2022, the increase in global LNG imports to the Netherlands and Belgium (+83%) stands out. This is followed by increases in flows to France (+74%) and Spain (+70%). By contrast, shipments from Russia to Poland fell by 84%, to Slovakia by 31% and to Germany by 8%.
At the same time, Algeria has also increased pressure on Europe. While Algerian gas flows to Italy increased by 3% in the first six months of the year, the diplomatic conflict with Spain and Spain's confrontation with Morocco caused a 40% drop due to the closure of the Maghreb gas pipeline. Algeria was historically the main supplier of natural gas but was displaced at the beginning of the year by the United States. In the last quarter of 2021, the Maghreb-Europe pipeline turned off the tap after several clashes between Algiers and Rabat and has since become a supply route to Morocco from Europe.
Europe, however, has been able to benefit from an unexpected situation. Between January and August, according to ACER, Chinese gas demand fell due to the restrictions applied by Covid and fuel switching. Beijing is unwilling to pay market prices for gas and reverted to using more coal. These spare capacities were absorbed by Europe, while U.S. supply continued to grow. At this point the regulator wonders what will happen when China's LNG demand returns to normal growth rates.
Beijing has resorted in this period to burning coal to generate power. In the first half of August alone, the country burned 8.16 million tons of thermal coal per day. That is 15% more than in the same period last year, according to China's National Development and Reform Commission, and also led to an increase in the cost of this raw material.
The ACER report also warns of a gap between daily gas prices in European markets. The price differences reflect the fact that the relevant volumes are not reaching the regions with higher prices, where gas is most in demand. For prices to converge, a solution to the existing bottlenecks must be found.
ACER has identified significant bottlenecks in the flows between Belgium, Luxembourg and West Germany that directly impact the daily price of the TTF, the benchmark index in most gas contracts.
Brussels is studying the creation of a new index to replace the Dutch TTF (Title Transfer Facility), the current reference in the Old Continent, for the purchase of LNG, as it considers that it does not faithfully represent the situation of the storage facilities or the market due to the existing bottlenecks in the physical supply in the country.
For the time being, ACER has to submit a proposal this month with the intention that it can start to be used next March.
Also, this new index coincides with the debate on the imposition of a cap on gas. At the moment, the proposal put forward by the Commission is to set a cap at 275 euros/MWh. This is a level that has not been reached since August last year, when it was close to 350 euros/MWh.
Furthermore, this is a measure that would only be activated if two conditions are met: that the price of gas futures in the TTF at one month exceeds 275 euros for two weeks and that this increase shows a divergence of more than 58 euros with respect to international LNG reference prices in ten consecutive days.
The Minister for Ecological Transition, Teresa Ribera, warned last Wednesday of a possible rejection of the EU countries to the proposals of the Community Executive. "There are member states that are going to say: Either a serious proposal is made or we stop supporting the Commission's proposals on other issues that may be important to it," said Ribera, who even called the approach presented by the European Commission a "joke".
The crisis is expected to accentuate the changes already taking place on the energy scene. If anything, the invasion of Ukraine has highlighted the importance of energy independence and the need to strengthen strategic autonomy.
Group of wise men
ACER, the European regulatory body, is preparing a tool to assess LNG prices by collecting real-time information on all daily transactions. To achieve this, the body - as the European Commission has done - wants to have its own committee of wise men.
This new LNG Price Assessment/Benchmarking Expert Group will build on the experience of the previous groups organized by ACER, providing views and opinions on the development of policies and regulatory measures related to this issue. The work of the expert group will commence after publication of the regulation in the Official Journal of the European Union. The European Commission asked ACER to submit to the next European Council on December 12 a proposal on the index to replace the TTF prices. The intention is that this new index can start operating next March.