International Energy Agency says Europe must slash gas demand before hard winter

Europe needs to drastically slash natural gas consumption in the next few months to prepare for what is likely to be “a long, hard winter”, the head of the International Energy Agency said.

It comes as Russia’s Gazprom told customers in Europe it cannot guarantee gas supplies because of “extraordinary” circumstances, upping the ante in an economic tit-for-tat with the West over Moscow’s invasion of Ukraine.

The July 14th letter said the state gas monopoly was retroactively declaring force majeure on supplies dating from June 14th. The news comes as Nord Stream 1, the key pipeline delivering Russian gas to Germany and beyond, is undergoing annual maintenance meant to conclude on Thursday. It added added to Europe’s fears that Moscow could keep the pipeline mothballed in retaliation for sanctions imposed on Russia over the war in Ukraine, heightening an energy crisis that risks tipping the region into recession.

Speaking earlier, IEA executive director Fatih Birol said that while the European Union has made some progress diversifying away from key supplier Russia, any shipments from the country remain highly uncertain, with a complete cut-off not ruled out, in a commentary outlining steps Europe must take to avoid a major gas crunch this winter.

As part of efforts to reduce its reliance of Russian energy, the EU on Monday signed a deal with Azerbaijan to double gas deliveries from the country to “at least” 20 billion cubic metres by 2027, up from 8.1 billion cubic metres last year.

Mr Birol said relying on alternative gas suppliers will not be enough. Even if Norway and Azerbaijan ship all they can deliveries from North Africa are close to last year’s levels and liquefied natural gas imports are already at record levels. An extra 12 billion cubic meters needs to be saved in the next three months, or the equivalent of about 130 LNG tankers, according to the IEA.

“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, he said. “Significant additional reductions are needed to prepare Europe for a tough winter ahead.”

Even if Europe manages to fill its storage sites to 90 per cent full, there is still a “heightened risk “of supply disruptions if there is a complete Russian cut-off, Mr Birol said. Risks are even higher if Russian flows stop before the region has managed to secure that storage threshold, he said.

The EU on Wednesday is planning a set of urgent actions across the entire economy – including reductions to heating and cooling use and some market-based measures – to mitigate the impact of a possible gas supply cut-off by Russia. – Bloomberg