Europe appears to be headed towards a major energy crisis as Russia, its main source market for natural gas, squeezes supplies to the continent before the winter months.
Russian state-owned energy company Gazprom declared force majeure on gas supplies to at least one major customer in Europe, Reuters reported on Monday.
Force majeure is a legal measure allowing companies to free themselves from contractual obligations due to circumstances beyond their control.
Gazprom, which has a monopoly on Russian gas exports by pipeline, said in a letter that it could not fulfil its supply obligations owing to "extraordinary" circumstances outside its control, the report said.
There were already concerns that Russia, which shut down its main Nord Stream 1 pipeline for 10 days starting from July 11 for planned maintenance, will use the opportunity to close it for good, because of Moscow's stand-off with western powers over its military offensive in Ukraine.
If Russian gas flows from Nord Stream 1, a 1,224-kilometre pipeline under the Baltic Sea, do not resume, there will be an “intensification of energy saving measures, higher prices and reduced production in some industries, especially in late autumn and during winter”, across Europe, rating agency Fitch Ratings said last week.
“We estimate that the shortfall in natural gas will not exceed 10 per cent of annual European consumption, although the actual amount will depend on factors such as weather that are difficult to predict,” the rating agency said.
For months, European leaders have been grappling with the prospect of losing Russia’s natural gas supply, which accounts for some 40 per cent of European imports and has been a crucial energy lifeline for the continent.
In the immediate short-term, reduction of gas supplies will hit Europe as it battles a severe heat wave and wild fires with temperatures expected to climb above 40°C over the coming days. This has put undue demand on gas-fired power generation to keep homes and businesses cool.
If Russia’s prolonged disruptions continue, experts warn of a difficult winter: one of potential rationing, industrial shutdowns ― and even massive economic dislocation.
Last month, Europe’s largest economy, Germany, declared a gas emergency and called on people to save power, so that their lights will stay on in winter.
The move would also cause problems for other European countries, after modelling by German regulators said the country would have to curb its onward exports to countries such as Austria and the Czech Republic.
Unrest has already been brewing, with strikes erupting across the continent as households struggle under the pressures of spiralling costs of living amid soaring inflation.
If timely co-ordinated action is not taken, the issue could snowball into a massive crisis, the International Energy Agency (IEA) warned on Monday.
“The gas crisis in Europe has been building for a while, and Russia’s role in it has been clear from the beginning,” said Fatih Birol, executive director of the IEA.
Even before Russia’s invasion of Ukraine in February, Moscow had started preventing a "significant amount of gas" from reaching Europe, the IEA said.
This in turn created “artificial tightness in markets”, driving up prices at exactly the same time as tensions were rising over Ukraine.
By taking steps such as maximising gas supplies from other sources, accelerating the deployment of solar and wind, leveraging existing low emissions energy sources — such as renewables and nuclear — and ramping up energy efficiency measures in homes and businesses, the EU can reduce its reliance on Russia, the IEA said.
“With early and sustained action, it would be possible to reduce the EU’s reliance on Russia gas imports by one-third within a year — and to do so in an orderly manner that would be consistent with the EU’s climate ambitions,” Mr Birol said.
executive director of the IEA
While he acknowledged the introduction of some measures, such as diversifying gas supplies, more needs to be done on the demand side to "prevent Europe from finding itself in an incredibly precarious situation today", he said.
European countries will require to save an extra 12 billion cubic metres of gas in the next three months.
“The first immediate step towards filling European gas storage to adequate levels before winter is to reduce Europe’s current gas consumption, and to put the saved gas into storage. Some of this is happening already because of sky-high gas prices, but more is required,” Mr Birol said.
But if Russia decides to completely cut off gas supplies before Europe can increase its storage levels up to 90 per cent, the situation will be "even more grave and challenging".
"It will require cool-headed leadership, careful co-ordination and a strong degree of solidarity. European leaders need to be preparing for this possibility now to avoid the potential damage that would result from a disjointed and destabilising response," Mr Birol said.
The IEA suggested five steps to address the situation, including introducing auction platforms to incentivise EU industrial gas users to reduce demand; minimising gas use in the power sector; enhancing co-ordination among gas and electricity operators across Europe; bringing down household electricity demand; and harmonising emergency planning across the EU at the national and regional level.
Calling the next few months "critical", Mr Birol said he has been urging EU leaders to "do all they can right now to prepare for a long, hard winter".
"This winter could become a historic test of European solidarity — one it cannot afford to fail — with implications far beyond the energy sector. Europe may well be called upon to show the true strength of its union," Mr Birol said.
