Why the European Union may face its most troubled winter in decades

THE Winter of 2020, during the peak of the pandemic in Europe, was a terrible time for the region with the worst health crisis for decades. Yet, the end of 2022 could be an even more troubled period with the prospect of an energy emergency, and a possible resurgence in the coronavirus crisis.

With the continent preparing for what may be its most difficult autumn and winter since World War II nearly 80 years ago, the European Union (EU) agreed on Tuesday (Jul 26) to a major proposal to reduce the consumption of gas. This could have significant implications for European businesses and households from next month till March 2023.

Russia is increasingly seen in the West to be “weaponising” energy supplies, and European Commission President Ursula von der Leyen stressed it is likely that Russia will cut off all supplies of gas in the coming months. This challenging energy picture is impacting Europe’s economic outlook with the International Monetary Fund’s (IMF) latest forecast this week, which downgraded the growth of the 27-member EU bloc in 2022 to 2.6 per cent (down from 5.4 per cent in 2021). The IMF has projected growth of just 1.2 per cent for 2023, with the risks all weighted heavily to the downside.

Under the approved text of the agreement reached on Tuesday, the bloc agreed in aggregate to approximately 15 per cent reductions in gas consumption. However, underneath this headline measure, there has been significant lobbying by EU states in recent days to secure exemptions from the gas measures, and there are at least 3 different types of such ‘opt outs’. 

First, there are exemptions from the mandatory target for island countries, like Ireland, Cyprus and Malta, which are not connected to the EU gas grid. Second, there are exemptions to cover EU countries whose electricity grids are synchronised with countries outside of the EU, such as the Baltic states which are connected to Russia’s grids, and may need to fuel their electricity production with gas should Moscow cut them off.

Third, there are also several other opt-outs available to EU countries, including if they have overshot their gas storage filling targets, if they are heavily dependent on gas as a feedstock for critical industries, or if their gas consumption has increased by at least 8 per cent in the past year compared to the average of the past 5 years, such as in some southern European nations.

European Commission (EC) officials have warned that the negotiated opt-outs mean there’s a risk the bloc falls short of the 15 per cent target. Depending on the exemptions ultimately used, the overall reduction will be between 38 billion and 43 billion cubic metres, just short of the 45 billion cubic metres reduction sought.

Moreover, the measure allows, in emergency circumstances, for the voluntary cuts to be made into compulsory ones. The EC can propose the highest level of gas alert, which triggers the mandatory targets, and the 27 EU member states then have to vote to approve it. Alternatively, at least 5 countries that have declared national alerts can request that the Commission trigger the continental EU-wide alert. 

Gas storage levels across the bloc have now hit 66 per cent, according to the EC. However, some countries still have a lot of work to do to reach the EU’s target of filling its gas storage to at least 80 per cent for the coming winter, while Poland has filled its gas storage to 98 per cent of capacity. 

Last week, the International Energy Agency warned that even with gas storage filled to 90 per cent and a functioning Nord Stream pipeline in the coming months, the EU will be exceptionally vulnerable to the vagaries of Gazprom potentially reducing or totally stopping supplies this autumn and winter. 

Only Hungary voted against the new gas measures agreed by the EU. Budapest is increasingly frustrated with Europe’s sanctions policy, and last week Prime Minister Viktor Orban called for new efforts by the US and Russia to broker a peace deal in Ukraine.  Hungary’s Foreign Minister Peter Szijjarto was in Moscow recently to try to buy nearly a billion cubic metres of natural gas from Russia. 

While the voluntary reduction may seem weak, there are some ‘sticks’ the EC has to enforce this. The Commission, assisted by the European Gas Coordination Group, will be monitoring and enforcing such reductions closely, including by requesting additional measures to reach the mandatory reduction in case the submitted national plans are deemed insufficient.  

In case of requests for solidarity gas supply requests, the EC will also require that member states demonstrate that all appropriate gas demand reduction measures have been implemented domestically before such requests are agreed to. 

Tuesday’s decision in Brussels took place just a day after Gazprom, Russia’s state-owned energy multinational, announced reduced natural gas flows through the Nord Stream pipeline to 20 per cent of capacity, citing equipment repairs. The EU has blasted the move as a political decision to put pressure on the West in the context of the war in Ukraine. 

Last week, Gazprom’s issued a note of so-called “force majeure” on supplies of gas to European buyers. In essence, this is the first step in seeking diminished legal responsibility if gas doesn’t get delivered to Europe in the coming weeks. 

While the United Kingdom will not be as directly impacted by gas supply disruption as the EU, as it imports less than 5 per cent of its gas from Russia, it will still be affected by prices rising in the global markets as demand in Europe increases. In light of Gazprom’s latest moves, European natural gas benchmark contracts rose on Tuesday to the highest levels since early March, and may yet spike further in the next few months.  

The gas consumption measure will be complemented by the EU seeking more supply diversification measures, building from recent ones with Israel, Egypt, Azerbaijan and Norway. Last week, EC officials visited Nigeria to ascertain the feasibility of growing liquefied natural gas imports, and French President Emmanuel Macron last week hosted United Arab Emirates President Sheikh Mohamed bin Zayed Al-Nahyan in Paris, while German Chancellor Olaf Scholz met Egyptian President Abd al-Fattah as-Sisi in Berlin. 

Taken together, this is why energy security has become a much more important policy goal in Europe. With a growing chance of emergency measures being needed, the next few weeks are critical for the continent to prepare for what could be a historic autumn and winter to come.  

Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics