Europe is pumping less gas as demand revives, leaving a gap Russia is filling5 min read . Updated: 22 Sep 2021, 06:54 PM IST
- Natural-gas supply shortfalls have led to record prices for the fuel and electricity, stoking fears of a shortage
A giant Dutch natural-gas field once pumped enough fuel to cover the current needs of Germany, Europe’s largest economy. Next year the field is shutting down over environmental concerns.
Natural-gas supply shortfalls have led to record prices for the fuel and electricity, stoking fears of a shortage and spotlighting European efforts to cut greenhouse-gas emissions. The conflict is one economies world-wide face as they try to adopt cleaner energy sources.
The European Union taxes carbon emissions to discourage use of fossil fuels and has promoted renewable sources of energy to replace them. Some countries have also targeted production. Denmark has committed to stop pumping oil and gas by 2050. The Netherlands is shutting down its vast field, near the town of Groningen, amid public pressure over earthquakes attributed to it.
Dutch production cutbacks have left a hole in European output just as demand returns from lockdown-induced lows. Futures contracts for gas to be delivered in the Netherlands fetched €75.32 a megawatt-hour, about equivalent to $88.41, on Monday. That was their highest level since 2013 and almost seven times their price one year ago. Adding to the upward pressure, American oil-and-gas producers have held back, and droughts in places such as Brazil have curtailed hydropower, prompting a dash to burn gas.
“In hindsight it would probably be better to have more Groningen production," said Trevor Sikorski, head of natural-gas and carbon research at Energy Aspects. “It’s…gone from being a big source of supply to being nothing in about five years. It’s gone very, very quickly."
Europe has long struggled to meet its energy needs, even turning to the Soviet Union during the Cold War. Aggravating the problem have been recent moves to end reliance on nuclear power in Germany and continentwide efforts to cut greenhouse-gas emissions.
Europe’s need for gas is drawing cargoes of American liquefied natural gas, or LNG, across the Atlantic, feeding into higher prices for gas in the U.S. itself. It has also handed more sway to Russia, Europe’s biggest supplier. The Kremlin said last week that the shortfall could be eased by swifter approval for its Nord Stream 2 pipeline, which could double Russian supplies sent directly to Germany. The U.S. and many Europeans oppose the pipeline.
“Demand is high, and it’s unclear what winter will be like. If it will be cold, then of course more gas will be needed," Kremlin spokesman Dmitry Peskov told reporters on Sept. 16, according to Russian media.
The jump in prices has drawn complaints from some in Europe that green policies can raise costs on consumers. The cost for an EU permit to emit a metric ton of CO2 hit €60 in August for the first time, which is especially painful for countries that rely on coal to produce electricity, particularly Poland.
“Polish power prices are tied to the EU’s climate policies," Polish Prime Minister Mateusz Morawiecki said this month.
EU officials say one-fifth of the higher power costs can be attributed to the higher price for emitting CO2. The EU is targeting net-zero greenhouse-gas emissions by 2050, meaning that all carbon emissions would be offset by carbon-removal efforts.
The EU and the U.K., which has been hit hardest by the price increase, say the situation shows the need for more green energy. “Our exposure to volatile global gas prices underscores the importance of our plan to build a strong, homegrown renewable energy sector to strengthen our energy security," Kwasi Kwarteng, U.K. secretary of state for business, energy and industrial strategy, told parliamentarians Monday.
The falling production in the Netherlands reflects a broader EU debate about the role of natural gas. The bloc’s executive arm has recognized that some countries that rely on coal to produce power will need to use gas-fired plants as part of a transition to cleaner energy, even as the bloc pushes investments away from fossil fuels.
“Nobody wants to invest in natural gas in Europe," said Christoph Merkel, managing director at German consulting firm Merkel Energy, pointing to climate policy as one factor.
Gas production in Europe has declined precipitously in recent years, leaving Europe more dependent on fuel from Russia, Norway and the U.S.
Europe had in recent years banked on new sources for gas, from Azerbaijan to imports of liquefied natural gas to production of shale gas trapped in rocks, the kind of output that caused production in the U.S. to surge. But those have come up short.
The Kremlin has stepped into the gap, increasing shipments to Europe, including Turkey, to nearly 200 billion cubic meters in 2019 from under 140 billion cubic meters a decade earlier. But this year, Russian state-controlled gas giant Gazprom PJSC has booked less additional export capacity through westward pipelines than traders expected. Some analysts say that looks like an effort to pressure the West over Nord Stream 2. Gazprom has said it is fulfilling contractual obligations.
The International Energy Agency said Tuesday that Russia’s exports to Europe were lower than they were in 2019. The energy adviser called on Moscow to send more gas to Europe to make sure the continent has sufficient supplies heading into winter.
At the heart of Europe’s decline in gas output has been Groningen. The field was one of the world’s largest when it started production in 1963, providing gas to heat homes and fire factories in northwest Europe. The field, which is operated by a joint venture between Exxon Mobil Corp. and Royal Dutch Shell PLC, hit peak output of 88 billion cubic meters in 1976, about half of the volumes Russia sold to Europe last year.
Those days, the Dutch government aimed to sell as much gas as possible before it assumed nuclear power would take over. The field started to pump more gas again this millennium, reaching 54 billion cubic meters in 2013. But a series of earthquakes that damaged buildings raised public pressure on the government, which curbed output and decided in 2019 to close the field.
Last year, the field produced 8 billion cubic meters, and starting next year it will be used only in case of emergency supply shortages.
This story has been published from a wire agency feed without modifications to the text
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