Europe at risk of winter energy rationing, global watchdog warns

Europe is at risk of energy rationing this winter, particularly if cold weather coincides with resurgent economic demand in China, the head of the world’s watchdog for the sector has warned.

In some of the toughest comments yet about the possible scope of energy shortages in the wake of the Russian invasion of Ukraine, Fatih Birol, executive director of the International Energy Agency, said rationing could be introduced for industrial gas users and others if steps were not taken quickly to improve efficiency.

“If we have a harsh winter and a long winter and if we do not take [demand-side measures] ... I wouldn’t exclude the rationing of natural gas in Europe, starting from the large industry facilities,” he said.

Mr Birol said governments needed to drive down energy demand by improving efficiency, but added that potential gas shortages would be less severe “if the Chinese economy doesn’t perform at the usual pace”. In recent months restrictions imposed as part of Beijing’s zero-Covid policy have slowed economic growth and cut energy demand but the country is now reopening.

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Many continental European nations are heavily dependent on Russian gas and are concerned the Kremlin is using energy to put pressure on countries that back Ukraine. Gazprom, the state-controlled Russian energy giant, has already cut off countries including Poland, Bulgaria and Finland, and as of last week, the Netherlands and Denmark, for allegedly failing to comply with its demands to use a new rouble payment mechanism.

The IEA chief’s comments about possible rationing for Europe follow moves by Germany and Austria. Germany said in March that if there was an acute shortage it would cut off parts of industry from the gas network to ensure that households retained energy.

Mr Birol’s warning was amplified by Denmark’s climate minister Dan Jørgensen, who said in an interview that emergency plans, which could include energy rationing, might become necessary if Europe stopped importing Russian gas.

Kadri Simson, the EU’s energy commissioner, has also said the bloc is developing contingency plans for a complete halt to Russian gas imports, which people familiar with the proposals say would include rationing for industry.

At an IEA conference in Denmark attended by ministers and government representatives from at least 20 countries, the agency said the world could reduce yearly energy consumption by 2030 by the equivalent of China’s current annual use through steps such as better building insulation and other efficiencies such as better air conditioning.

Mr Birol argued that energy security should be achieved through increased efficiency, more use of renewable energy and “making the most of existing [oil and gas] fields” — rather than new, large fossil fuel projects, which could last into the 2040s and 2050s and could mean “saying goodbye to our international climate policy”.

But he warned sky high oil prices were likely to cause pain for many economies.

The price of Brent crude jumped close to its high of the year at the end of May after the EU announced a ban on most Russian oil imports, and has remained elevated since.

— Copyright The Financial Times Limited 2022