WEBVTT - Here's Why Europe is Worrying About Gas This Winter, Again 0:00:02.440 --> 0:00:10.240 Bloomberg Audio Studios, podcasts, radio news. I'm Stephen Carol and 0:00:10.360 --> 0:00:12.880 this is Here's Why, where we take one news story 0:00:12.920 --> 0:00:14.880 and explain it in just a few minutes with our 0:00:14.920 --> 0:00:21.840 experts here at Bloomberg. In twenty twenty two, an unprecedented 0:00:21.920 --> 0:00:25.720 energy crisis caused by Russia's invasion of Ukraine left Europe 0:00:25.720 --> 0:00:28.840 with a bill worth over a trillion dollars. For in 0:00:28.840 --> 0:00:31.600 the middle of an energy crisis is not just oil markets, 0:00:31.600 --> 0:00:35.320 but gas market, electricity market. The lesson is you've got 0:00:35.320 --> 0:00:37.840 to be energy independent. Don't put yourself in the hands 0:00:37.840 --> 0:00:41.920 of the dictator who's prepared to weaponize your provision of energy. 0:00:42.200 --> 0:00:44.760 Government's picked up much of that cost, and for a 0:00:44.840 --> 0:00:47.519 time at least it felt like the worst had passed. 0:00:47.840 --> 0:00:52.080 This oil price cup will help reduce Russia's revenues on 0:00:52.080 --> 0:00:55.600 one hand, and it will keep the global market for 0:00:56.000 --> 0:00:56.800 energy stable. 0:00:56.840 --> 0:00:59.760 On the other hand, there is a need to as 0:01:00.160 --> 0:01:04.160 as possible cut the link between the price of gas 0:01:04.560 --> 0:01:07.280 and the price of decabonated pinage. 0:01:07.400 --> 0:01:09.800 This year, by mid August, the European Union had filled 0:01:10.000 --> 0:01:13.600 ninety percent of its gas storage capacity preparing for the 0:01:13.600 --> 0:01:17.560 winter season. But for some even that might not be enough. 0:01:18.200 --> 0:01:21.800 So here's why Europe is worrying about the winter again. 0:01:24.440 --> 0:01:28.200 Joining us now is our senior energy reporter, Stephen Stapchinsky. Stephen, 0:01:28.360 --> 0:01:30.720 first of all, can you remind us how important our 0:01:31.000 --> 0:01:33.880 gas supplies to Europe's energy mix? 0:01:34.560 --> 0:01:37.160 I mean, gas plays a key role in Europe's economy. 0:01:37.360 --> 0:01:39.920 It made up about fifteen percent of power generation last 0:01:39.959 --> 0:01:42.640 year and it's expected to play a larger role as 0:01:42.640 --> 0:01:45.800 dirtier coal plants are shut You know, they're not only 0:01:45.880 --> 0:01:48.680 is it needed for power generation, it's needed for industries 0:01:48.680 --> 0:01:51.440 and then during winter it's needed for heating. So gas 0:01:51.680 --> 0:01:54.120 has played a key role in before the war in Ukraine, 0:01:54.200 --> 0:01:57.960 Russia was a major supplier via pipeline of some pretty 0:01:58.000 --> 0:02:01.240 affordable guest in. Their whole economy was kind of built 0:02:01.280 --> 0:02:01.840 around that. 0:02:02.200 --> 0:02:05.160 So we're over two years now on from the start 0:02:05.240 --> 0:02:09.040 of Russia's full scale invasion of Ukraine. How have European 0:02:09.080 --> 0:02:11.640 countries reorganized their supplies in that time? 0:02:11.919 --> 0:02:14.400 So there's the supply side and the demand side, right, 0:02:14.440 --> 0:02:18.240 So supply there has been a rapid rollout of renewables, 0:02:18.240 --> 0:02:20.880 been a big push to add more solar and win 0:02:20.960 --> 0:02:24.280 to the grid. There's a push to also increase offshore 0:02:24.360 --> 0:02:26.880 wind that has had some kurdles, and there's also been 0:02:26.919 --> 0:02:29.520 a push in most places except for Germany to also 0:02:29.600 --> 0:02:31.959 look at, you know, how can they expand nuclear power. 0:02:32.440 --> 0:02:36.840 On the demand side, consumers have really cut back consumption. 0:02:36.960 --> 0:02:40.000 They're they're better at conserving energy, and that includes households 0:02:40.040 --> 0:02:43.600 and businesses, but also industries. There is something called demand 0:02:43.600 --> 0:02:47.320 destruction where gas was just too expensive for industries that 0:02:47.400 --> 0:02:51.519 depended on it, like fertilizer and other kinds of businesses 0:02:51.760 --> 0:02:54.919 that depend on gas as a feedstock. So they've essentially 0:02:54.960 --> 0:02:56.799 just shut down and gone to other places. So when 0:02:56.840 --> 0:03:00.239 you look at European gas demand, actually it has has 0:03:00.600 --> 0:03:03.480 dropped over the last few years compared to when they 0:03:03.480 --> 0:03:07.000 were getting that cheaper Russian pipeline gas. Now they've turned 0:03:07.040 --> 0:03:10.560 significantly more to liquefied natural gas. Gas can be delivered 0:03:10.760 --> 0:03:14.239 either via pipeline from Russia or via liquified natural gas 0:03:14.480 --> 0:03:16.400 via ship. Some of that comes from Russia, but a 0:03:16.480 --> 0:03:19.640 large portion of it actually comes from the United States, 0:03:19.639 --> 0:03:23.760 and Germany built floating LNG import terminals and other countries 0:03:23.800 --> 0:03:27.639 are boosting imports of LNG to replace the Russian pipeline gas. 0:03:27.919 --> 0:03:30.680 The one thing though, is LLERG is just more expensive 0:03:30.840 --> 0:03:32.000 than the pipeline supplies. 0:03:32.320 --> 0:03:36.600 So this year the stockpiles are nearly full already. Why 0:03:36.680 --> 0:03:37.320 the concern. 0:03:37.800 --> 0:03:41.280 So that's the thing. Just because European stockpiles are full, 0:03:41.720 --> 0:03:44.960 it doesn't mean that they won't necessarily run out of gas. 0:03:45.440 --> 0:03:48.760 Let me explain why the stockpiles will help Europe get 0:03:48.800 --> 0:03:51.800 through a mild or normal winter if they're one hundred 0:03:51.840 --> 0:03:54.360 percent full. We've seen that in the last two winters. 0:03:54.360 --> 0:03:58.160 Actually they've been relatively mild, with just small short spates 0:03:58.200 --> 0:04:01.880 of cold periods. Certain now falls as to what if 0:04:01.920 --> 0:04:04.800 we have a really cold winter. Not only will that 0:04:04.920 --> 0:04:08.120 drain stockpiles in some places, but if it's also cold 0:04:08.120 --> 0:04:11.200 in other Northern Hemisphere places like North Asia, home to 0:04:11.200 --> 0:04:14.720 the world's biggest LNG importers, Suddenly you're draining your inventories 0:04:15.040 --> 0:04:16.880 very quickly. And then on top of that, you're not 0:04:16.920 --> 0:04:19.920 able to get those LNG shipments because LNG shipments go 0:04:20.200 --> 0:04:23.960 to where folks are paying the highest and if China, Japan, 0:04:24.200 --> 0:04:27.520 Korea want that LENG, they can pay more than Europe 0:04:27.520 --> 0:04:30.240 to get it. So that causes a problem for Europe, 0:04:30.400 --> 0:04:34.120 essentially leading to a sort of a price competition between 0:04:34.160 --> 0:04:38.919 the Pacific at the Atlantic, increasing prices and risking potentially 0:04:39.080 --> 0:04:41.880 worst case scenario curtailment for some customers. 0:04:42.400 --> 0:04:45.120 Today, though prices are still way way below where they 0:04:45.160 --> 0:04:48.599 were in twenty twenty two, what could trigger a spike? 0:04:49.000 --> 0:04:52.040 Yes, Okay, first that first bit, prices are way below 0:04:52.080 --> 0:04:53.840 where we were at the record levels in twenty twenty two, 0:04:53.839 --> 0:04:56.720 But I have to also show that prices are higher 0:04:56.760 --> 0:05:00.799 than the ten years before twenty twenty two. So prices 0:05:00.839 --> 0:05:03.279 on average are higher than before the war in Ukraine, 0:05:03.279 --> 0:05:04.880 even though they're not as high as record high levels 0:05:04.880 --> 0:05:08.080 from twenty twenty two. Now, the global gas market is 0:05:08.160 --> 0:05:11.400 still in a bit of a careful balance. So things 0:05:11.400 --> 0:05:13.400 that could trigger a spike. If there is a hurricane 0:05:13.440 --> 0:05:17.200 Atlantic and it disrupts LNG exports from a US facility 0:05:17.440 --> 0:05:19.960 from the US golf, that could cause a spike. Any 0:05:19.960 --> 0:05:22.000 sort of disruption to supply. If it's cold, as I 0:05:22.000 --> 0:05:25.080 mentioned before, that could also cause a spike. If there 0:05:25.120 --> 0:05:27.720 are any more issues with key choke points. You know 0:05:27.760 --> 0:05:30.039 you have the Sewis Canal is not being used for 0:05:30.240 --> 0:05:33.599 LNG trade. If that leads to more disruption to other 0:05:33.880 --> 0:05:36.960 parts of global trade, routes that could also lead to 0:05:37.040 --> 0:05:41.640 price spikes. Likewise, if there's any disruption to supply in 0:05:41.680 --> 0:05:44.920 the European region, especially Norway which is essentially the largest 0:05:44.920 --> 0:05:47.960 supplier of gas to Europe, if there is a extended 0:05:48.040 --> 0:05:51.640 maintenance during their maintenance period, if they're unable to deliver 0:05:51.680 --> 0:05:53.240 the gas that they promise, that could also lead to 0:05:53.240 --> 0:05:55.320 a spike. That is to say, the two big things, 0:05:55.360 --> 0:05:57.440 disruptions and weather are going to be the things that 0:05:57.480 --> 0:05:58.920 could affect prices going forward. 0:05:58.920 --> 0:06:02.800 Here that makes supplies alsound quite vulnerable. Is Europe any 0:06:02.839 --> 0:06:06.200 closer to long term solutions to try and address thus. 0:06:06.360 --> 0:06:09.520 Now, the good thing is that wind and solar generation, 0:06:09.600 --> 0:06:12.400 as mentioned before, has been rising really rapidly. It hit 0:06:12.440 --> 0:06:14.800 a record twenty seven percent for the EU power mix 0:06:15.120 --> 0:06:18.320 in twenty twenty three, and it's continuing to rise. But 0:06:18.480 --> 0:06:22.680 the other goals, which is, you know, implement hydrogen supply 0:06:22.839 --> 0:06:28.279 chain green hydrogen. Also, dependence on coal means that gas 0:06:28.320 --> 0:06:30.440 is going to be needed more and it's just not 0:06:30.600 --> 0:06:34.120 there at the moment. At the same time, different efforts 0:06:34.240 --> 0:06:37.280 to increase nuclear power generation is going to take years. 0:06:37.360 --> 0:06:39.279 It's not easy to put on a nuclear power plant 0:06:39.400 --> 0:06:42.200 and offshore wind has had a few hurdles, so that 0:06:42.320 --> 0:06:45.000 is to say European policy is in the right direction 0:06:45.040 --> 0:06:47.640 and wind and solar has definitely been deployed at a 0:06:47.680 --> 0:06:50.279 faster rate, but there's still more to be done before 0:06:50.360 --> 0:06:54.359 Europe can really reduce their dependence on gas and reduce 0:06:54.360 --> 0:06:55.280 this vulnerability. 0:06:56.040 --> 0:06:59.640 Steven Stoptinski, our senior energy reporter, Thank you for more 0:06:59.760 --> 0:07:02.560 Xnations like this from our team of twenty seven hundred 0:07:02.600 --> 0:07:05.440 journalists and analysts around the world. Search for Quick Take 0:07:05.480 --> 0:07:10.640 on the Bloomberg website or Bloomberg Business App. I'm Stephen Caroll. 0:07:10.800 --> 0:07:13.480 This is Here's why. I'll be back next week with more. 0:07:13.720 --> 0:07:14.520 Thanks for listening.