Energy prices may be complicated this year by a sharp increase in demand for natural gas that Europe will have to face with Ukraine’s lock on Russian gas and the threat of a supply cut from Qatar.
Europe thus converts its dependence on Russian gas into dependence on American LNG and prices in international markets have already begun to reflect this situation, which may also be reflected in the cost of ship charters in the coming months.
TTF prices fell below 23 euros/MWh in the first quarter of 2024 to rise steadily to exceed 50 euros/MWh at the end of December, that is, more than double. And it is expected that it can reach peaks of up to 70 euros.
According to Bank of America, “Record spring inventories led many to believe storage would peak prematurely in 2024but the balance sheets defied expectations. The record heat of the Asian summer boosted the use of gas in the regional electricity sector, helping to offset weak European demand. Furthermore, prolonged disruptions and delays should limit LNG supply growth to a multi-year low of just 3 million tonnes in 2024. These dynamics prevented European gas storage from filling soon, while the Dunkelflaute in October /November saw NWE (northwest) wind generation fall by 26% or 13 GW year-on-year. “Gas generation filled the gap, increasing 22 GW month-on-month in November, leading to the fastest storage drawdown since 2016.”
At the end of December, the European energy regulator ACER presented its analysis of the report by European gas transporters ENTSOG on the capacity of European gas infrastructure to meet demand during this winter and summer of 2025, taking into account the reducing Russian gas imports and increasing dependence on LNG.
ACER highlights the importance of maintaining high levels of gas storage in the EU, but also warns of the risks of early withdrawal of reserves, which could reduce the flexibility of the system and increase the risk of demand rationing.
The regulator recommends ENTSOG improve its forecasts, including a qualitative analysis of future gas prices and price differences between summer and winter, as well as greater clarity on the monthly capacities added by new infrastructure projects.
The transporters’ study presents an analysis of Europe’s capacity to meet demand in different scenarios, including a typical winter and a cold winter (like the current one), as well as the complete interruption of Russian gas supplies.
ENTSOG concludes that European gas infrastructure is able to meet demand in a typical winter scenarioeven without Russian gas, but that In a cold winter scenario, additional measures would be needed to avoid demand rationing.
According to the ENTSOG study, the countries that could be Most affected in these cases would be Croatia, Bulgaria, Greece, Hungary, Romania, Serbia, Bosnia Herzegovina, North Macedonia and Moldova.
Some countries have strategic reserves that could be used to avoid supply cuts, which have not been taken into account in the analysis carried out by transporters.
The document also analyzes the capacity of European infrastructure to meet demand during summer 2025, taking into account the need to refill gas stores.
ENTSOG concludes that European infrastructure is capable of meeting demand during the summer of 2025, even without Russian gas, but that additional measures would be needed to reach the 90% storage target by the end of summer.
The European Commission reassured about the situation of risks to supply, but is already preparing a plan to manage the departure of Russian gas, which it plans to present next March, but tensions in the countries most affected by the gas cut Russian (Austria and Slovakia) have already begun to emerge.
The Prime Minister of Slovakia, Robert Fico yesterday described Ukraine’s decision to prevent the transit of Russian gas as “sabotage” for its territory. This is, according to Fico, “a sabotage of public finances”, which will mean that 500 million euros of gas taxes in transit through that country will not be received.
For the Slovak president, “the EU will spend between 60,000 and 70,000 million additional euros” due to this supply cut, based on a study by the Slovak gas company SPP.
“The only thing the US will gain from this decision is the increase in gas imports to Europe,” said Fico.
Next Tuesday a meeting of delegations from Slovakia and Ukraine will take place in Brussels to address this dispute and, if an agreement is not reached, Bratislava will take action.
“We are prepared to propose interrupting the supply of electricity,” Fico reiterated, although for this it is necessary to declare reasons of force majeure. The reason is that the energy suppliers are private companies and that decision is not the responsibility of the State.
Fico is also willing to “substantially reduce support for Ukrainian citizens on Slovak territory” (around 127,000) and has radicalized his criticism of Western support policies for Ukraine. In late December, his visit to Russian President Vladimir Putin in Moscow sparked outrage in kyiv.
Impact on electricity
According to The Oxford Institute for Energy Studies, gas-fired power generation remains the main source of flexibility for the European electricity system, and increasing dependence on wind causes unpredictable spikes in gas demand that intensify during cold temperatures, when heating usage increases.
Despite the overall decline in gas demand in Europe, its use for power generation has become more volatile and less price sensitive.
Gas supply flexibility comes mainly from underground storage and LNG regasification terminals, while flexibility from pipeline imports – mainly Norway, Algeria and Azerbaijan – and European gas production is limited.
Oxford concludes that Europe needs to increase its flexibility in gas supply so that it goes beyond seasonal variation in demand and can cope with daily fluctuations in demand.
This flexibility is provided by import and regasification capacity as well as storage, which work in response to price signals that reflect increases in demand.
According to Eurelectric data, 2024 was a year of records for the European electricity sector. Emissions were reduced by 59% compared to 1990 levels thanks to the increase in renewable energy. As a result, the EU achieved the cleanest electricity generation mix in its history. Negative prices broke another record, occurring 1,480 times.
Positively, the average EU wholesale electricity price for the next day decreased by 16% compared to 2023, with some notable exceptions in the last quarter of the year. On the other hand, electricity demand has not recovered since the crisis, mainly due to low industrial consumption. Looking ahead, incentives to electrify industry will be crucial to achieving a competitive decarbonized economy.
The EU closes the year with lower average electricity prices. In 2024, wholesale prices in the daily market fell to 82 euros/MWh, compared to 97 euros/MWh in 2023. This average was even lower (76 euros/MWh) until the last quarter of the year, when the rebound in gas , high winter demand, a shortage of solar energy and days without wind drove up prices, causing several spikes in Germany, Hungary, Romania and Sweden. At the same time, negative prices broke a new record this year, registering 17% of the time in at least one supply zone.
“Eurelectric data demonstrates once again that investing in more renewable generation is the right path to a more competitive and decarbonised economy, but it must be complemented with more firm and flexible capacity to balance its variability, limit dependence on expensive fossil fuels and contain price spikes,” says Cillian O’Donoghue, Policy Director at Eurelectric.
In 2024 the lowest emissions from the EU electricity sectorwith a decrease of 13% compared to 2023. Renewables represented 48% of the EU’s electricity production, followed by nuclear (24%) and fossil fuels (28%), the lowest share in history. While nuclear remained the leading technology in electricity production, wind maintained its lead over gas from last year. Electricity from hydro and solar sources increased significantly by more than 40 TWh year-on-year. This is equivalent to half of Belgium’s annual demand and all of Denmark’s.
The Electricity demand grew by less than 2% this year compared to 2023, but still lower than pre-crisis levels. Part of this reduction is due to greater energy efficiency and energy savings; However, more than 50% of this decline is due to the industrial slowdown.
In Germany, industry electricity consumption fell by 13% in 2023 compared to 2021 and is expected to have plunged further in 2024 as industrial production decreased by 4% year-on-year. Promoting industrial electrification must be a priority for the new European Commission.
The Clean Industrial Deal becomes the ideal opportunity to offer incentives for electrification, such as the creation of an electrification bank, accelerated electrification zones and risk reduction mechanisms for long-term power purchase agreements.
What is ‘Dunkelflute’ and why does it cause price tensions?
‘Dunkelflaute (literally “dark calm”)’ is a German term that has become popular in the energy sector to describe weather conditions in which reduced sunlight and wind strength mean that hardly any energy can be generated from renewable sources.
According to The Oxford Institute for Energy Studies, as the participation of renewables in electricity generation increases, these episodes have increased the volatility of gas demand and have influenced prices (especially in times of scarcity in the market). ) when electricity generated from natural gas is sent to fill that intermittency gap, even though total gas demand continues to decline as renewable energy development progresses.
This situation causes strong gas demand tensions at times that cause significant reductions in storage levels.
In 2024 several episodes of ‘Dunkelfluute’ were produced in January and November. However, these episodes receive more attention when the market is tense during times of low temperatures. This phenomenon occurred at the same time in several European countries, most of which also experienced relatively cold weather, and caused the retreat of 4.5 Bcm from November 3 to 16, a very strong and early decline in the winter season. . During the rest of the month, heating demand caused even more gas to come out of the tanks (5.9 Bcm), which kept gas prices at a high level during the period from November 25 to 30.
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