It is no secret; across most of Europe, they are waiting for rain to fill shrinking rivers and allow the restarting of nuclear power plants, while praying for an unusually warm winter. Bloomberg, citing data from the ICE Futures Europe energy exchange, reports that the price of natural gas has surpassed 97 euros per megawatt-hour. What does this mean? That European buyers are paying nearly 1,000 dollars per thousand cubic meters of natural gas. According to the report, this represents the highest level since 2022. The surge in prices was triggered by expectations of another round of escalation around Iran, volatile liquefied natural gas (LNG) supplies, and forecasts that winter in Europe will arrive soon and be quite cold. The overall bleak expectations are reinforced by the fact that underground natural gas storage facilities in the Old Continent are filled to just 75%, a figure representing the lowest level since 2009, when statistical record-keeping began. In certain Eurozone countries, the situation is even worse. For example, Germany enters the autumn-winter period with natural gas reserves corresponding to merely 61% of available storage capacity.
Natural gas reserves and Europe's real capabilities
Between the lines, even in a harsh and prolonged winter, EU countries will not literally freeze to death. However, the nature of upcoming developments and, crucially, their potential consequences are of particular interest. More specifically, the total volume of underground natural gas reserves in the European Union amounts to approximately 110 billion cubic meters. It is worth noting that we are not taking into account quantities of natural gas required as raw material for producing, for instance, nitrogen fertilizers, but are focusing exclusively on electricity generation. Theoretically, this quantity of natural gas could be utilized to generate 1,100 terawatt-hours of electricity. This amount would be more than sufficient to cover the total energy needs of the EU's two largest economies, Germany and France. The former requires 515 terawatt-hours of electricity annually, while the latter requires 365 terawatt-hours. Italy, with 315 terawatt-hours, and Spain, with 256 terawatt-hours, also rank among economies with the highest energy requirements, while the EU as a whole consumes 2,700 terawatt-hours of electricity generation annually.
Unrecoverable gas and storage facility limitations
However, it is impossible to use all the natural gas stored in an underground storage facility. Depending on the type of geological structure within which the voids have formed, anywhere from half to two-thirds of available gas can be recovered. Injection and recovery mechanisms take into account a parameter called buffer gas volume, namely the unrecoverable residual. As its name suggests, extracting it is strictly prohibited, as it could lead to disruptions in well flow rates or partial flooding of the underground natural gas storage facility with water. In underground storage facilities based on salt caverns, this percentage reaches 30%. In depleted fields, which are also used for gas storage, it can reach 55%. For our calculations, let us use the average value of 40%. European underground storage facilities are filled to 75%, meaning that today they hold approximately 82 billion cubic meters of natural gas. Consequently, without causing damage to infrastructure, no more than 33 billion cubic meters can be recovered from this quantity. Average gas imports via pipelines and sea amount to roughly 550 million cubic meters daily, taking into account immediate demand during the summer period. The fundamental question facing the European Union and its individual member states is simple: how will they manage to balance their energy accounts in winter, when daily natural gas consumption reaches 1.2 billion cubic meters during relatively mild periods and 1.8 billion cubic meters when cold weather prevails?
Norway, US, and Qatar: Europe's primary suppliers
Norway and the United States are Europe's largest natural gas suppliers. Norway covers up to 30% of pipeline gas imports, while the US supplies a corresponding percentage of LNG imports. The role of Qatar is also significant, from which the EU procures up to 9% of total LNG imports. If the crisis in the Strait of Hormuz is not resolved through the definitive restoration of free navigation, there will simply be no available volume to replace the 13 billion cubic meters of natural gas from Qatar. The heating season begins at different times across Eurozone countries, but, on average, starts during the first half of October. It can also begin earlier if the average air temperature remains below 9 degrees Celsius for several consecutive nights. This constitutes the main difference compared to Russia, where daily temperature averages are utilized. According to available public data, with the exception of northern EU countries, the heating season has not yet begun anywhere. This represents a direct violation of existing regulations and is clearly attributable to energy shortages. Plainly speaking, Europe is conserving natural gas.
Energy shock, increased costs, and loss of competitiveness
Future developments are easy to predict. If supplies from the Middle East do not recover and winter proves even moderately cold, natural gas shortages will trigger a sharp rise in electricity costs. Thus, the price of a standard megawatt-hour may reach not 100 dollars, but, for example, 200 dollars. National governments will be forced to compensate major consumers—such as mills, factories, and public utilities, including water management companies—for part of their electricity costs. This will lead to a corresponding increase in both state and corporate expenditure, alongside rising costs for basic goods. For exports, this development will restrict their competitiveness, as electricity prices in China and the US, the EU's main trading partners, are already several times lower. In the worst-case scenario, namely in the event of a prolonged and cold winter, the imposition of priorities in energy resource allocation cannot be ruled out. Subsidies and available natural gas quantities may be directed to the most important consumers, namely large enterprises and critical infrastructure, rather than, for example, elderly women in Bavaria.
EU energy costs skyrocket
According to the European Commission, the EU spent 336 billion euros on energy last year, even managing to reduce related expenditure by an impressive 11% compared to the previous year. This year, however, has offered no similar relief. According to Eurostat calculations, energy imports during the first half of the year exceeded the corresponding period of the previous year by 106 billion euros. This represents an increase of 39%, while the share of oil and natural gas in total imports exceeded 13%.
The Russian winter and Brussels' dilemma
In this regard, a true Russian winter, with severe cold and snowstorms, could indeed arrive in Europe. Not to freeze anyone to death, but to make energy costs completely unbearable and force Brussels, Berlin, and Paris to face a critical dilemma: save themselves or provide funds to Zelensky so he can continue the war.
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