Winter at the gates – Newspaper Kommersant No. 206 (7407) of 11/08/2022

Three and a half months have passed since I wrote a column about Gazprom’s plan to prevent the Europeans from filling underground storage facilities with gas on the eve of winter (see Kommersant of July 26). Already in the coming days, Europe will officially enter the heating season and move on to net withdrawal of gas from UGSFs, so we can sum up the intermediate results of this strategy. So far, they are disappointing for Gazprom – now UGS facilities in the EU are 95.2% full, which was helped by warm weather in October-November and consistently high LNG supplies.

These reserves will apparently be enough to get through the “average” winter (in terms of temperature conditions) without shutting down consumers or with minimal interruptions, while in April, at the end of the withdrawal season, a solid 40-45 billion cubic meters of gas will still remain in storage for next winter. However, if the winter is cold or LNG supplies to Europe decline from current record levels, Europeans will have to cut consumption more or risk ending the heating season with low UGS stocks. This is dangerous, because with the current minimum level of Russian gas supplies, the EU countries will not be able to pump as much fuel into storage during the summer of 2023 as this year: as a result, the passage of the winter of 2023-2024 will be even more difficult.

In the event of a combination of frosts and low LNG supplies (for example, because Asia also has cold weather), already this winter some EU countries may face not only industrial shutdowns, but also rolling blackouts that will affect the population as well. But so far, such a scenario looks unlikely.

Summing up, we can state that the situation with gas supply in Europe now looks better than it could have been expected at the end of July. There are serious risks, which are mainly related to the weather, but one can hardly expect that Europe will literally freeze this winter – rather, we will talk about targeted shutdowns of individual enterprises. It is difficult to imagine what the price of gas will be in this case, given the recent regulatory initiatives of the European Commission, but it is unlikely that it will decrease: European consumers will need to constantly win competition with Asia for LNG cargoes.

Just like three and a half months ago, I am skeptical about the effectiveness of the “gas blockade” of Europe in terms of changing the position of European politicians in the context of the Ukrainian crisis. So far, the Russian policy of “gas sanctions” has been about as successful in this regard as Western sanctions on Russia: very significant economic losses have already been incurred, and potential political dividends are still brewing in the fog of the future. Whether the cold winter will change the status quo, we will see in February.