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Europe's energy crisis.

 

According to fresh warnings from energy industry executives and analysts, Europe's energy crisis will persist for years if the region fails to reduce demand and secure new gas supplies. Mild autumn weather and a dash to fill up European storage sites have bolstered the region's energy security this winter. Still, concerns are starting to mount over whether sufficient supplies will be available next summer and the following winter. «We are in a gas crisis, and we will continue to be in a little bit of a crisis mode for the next two or three years,» said Sid Bambawale, head of liquefied natural gas for the Asia region at Vitol, the world's largest independent energy trader, speaking at the Financial Times Commodities Asia Summit in Singapore. The warnings present European policymakers with an uncomfortable reality.

Despite having already spent hundreds of billions of euros ensuring storage sites are filled this winter and providing support to households and businesses, the strain on public funds and pain for families and companies will continue next year. A new threat this week from Moscow to limit output from the only remaining pipeline connecting Russia and Europe has highlighted the importance of locking in supplies from other global producers and taking action to reduce fuel consumption by industry and householders. At the FT summit, Russell Hardy, chief executive of Vitol, said gas prices would have to stay sufficiently high to suppress demand for the fuel over the summer from industrial users to refill storage and keep the lights on. European gas prices have averaged €108 a megawatt hour in 2023, more than four times the previous decade's average.

«High prices will have to compress demand largely every month of next summer. » The analysis assumes the majority of Russian pipeline flows to Europe will remain cut off, excluding the southern TurkStream pipeline. As a result, scenarios allowing Europe to have ample storage levels involved significant demand destruction either in the winter or throughout November 2022 to September 2023, as well as raised LNG imports to 440mn cubic metres a day, more than this year. «The challenges for refilling storage during summer 2023 will highly depend on their utilisation in winter 2022-23,» Di Mattia said.

«Ongoing demand destruction and high LNG inflows are key to maintaining a supply-demand balance throughout 2023». But Europe's need for LNG may face infrastructure constraints with years of under-investment in fossil fuel-related projects. FTI's calculation does not consider regasification capacity in the Iberian peninsula as they have limited pipeline connections to the rest of Europe. Countries such as Germany, the Netherlands, Italy, France and Croatia have been pushing for new regasification terminals, including chartering floating storage and regasification units, or FSRUs.

In total, Europe could add 40 bcm a year of import capacity by October 2023, said Emmanuel Grand, senior managing director at FTI Consulting. 'High prices will have to compress demand every month of next summer.

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