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Europe’s Race to Secure Recent Energy Sources Is on a Knife’s Edge

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As Russia tightens its chokehold on supplies of natural gas, Europe is looking in every single place for energy to maintain its economy running. Coal-fired power plants are being revived. Billions are being spent on terminals to herald liquefied natural gas, much of it from shale fields in Texas. Officials and heads of state are flying to Qatar, Azerbaijan, Norway and Algeria to nail down energy deals.

Across Europe, fears are growing that a cutoff of Russian gas will force governments to ration fuel and businesses to shut factories, moves that would put 1000’s of jobs in danger.

Thus far, the hunt for fuel has been met with considerable success. But as prices proceed to soar and the Russian threat shows no sign of abating, the margin for error is thin.

“There may be a really big and legit worry about this winter,” said Michael Stoppard, vp for global gas strategy at S&P Global, a research firm.

Five months after Russia’s invasion of Ukraine, Europe is within the grip of an accelerated and increasingly irreversible transition in the way it gets its energy to heat and funky homes, drive businesses and generate power. An extended-term switch to more renewable sources of energy has been overtaken by a short-term scramble to make it through the approaching winter.

The quantity of natural gas coming from Russia, once Europe’s largest source of the fuel, is lower than a 3rd of what it was a 12 months ago. This week, Gazprom, the Russian energy giant, throttled back already sharply reduced flows in a key pipeline from Russia to Germany, sending European gas futures prices to record levels.

Inside a day of Gazprom’s announcement, the European Union called for a 15 percent cut of gas use throughout the bloc.

This move away from Russian natural gas — almost unthinkable after a decades-long embrace of Siberian gas delivered via pipelines stretching 1000’s of miles — is sending shock waves through factory floors and forcing governments to hunt alternative sources of energy.

The multipronged effort to uncover alternatives to Russian gas has largely made up for the shortfall. Despite Gazprom’s cutbacks, supplies of natural gas in Europe in the primary half of 2022 have been roughly equal to those of the identical period last 12 months, in accordance with Jack Sharples, a fellow on the Oxford Institute for Energy Studies.

The standout performer on this comeback has been liquefied natural gas, chilled to a condensed liquid form and transported on ships. L.N.G. has essentially switched places with piped gas from Russia as Europe’s predominant source of the fuel. About half of the availability has come from america, which this 12 months became the world’s largest exporter of the fuel.

Looking toward the tip of the 12 months, European countries are pushing energy firms to fill salt caverns and other storage facilities with gas to supply a margin of safety in case Russia shuts down the pipelines.

Europe’s gas storage has now built as much as about 67 percent of overall capability, greater than 10 percentage points higher than a 12 months ago. Those levels create some comfort that European countries might reach something near the European Union’s goal of 80 percent full before winter.

  • Grain Blockade: A breakthrough deal goals to lift a Russian blockade on Ukrainian grain shipments, easing a world food crisis. But within the fields of Ukraine, farmers are skeptical.
  • An Ambitious Counterattack: Ukraine has been laying the groundwork to retake Kherson from Russia. However the endeavor would require huge resources, and will come at a heavy toll.
  • Economic Havoc: As food, energy and commodity prices proceed to climb world wide, few countries are feeling the bite as much as Ukraine.
  • Inside a Siege: For 80 days, on the Avtostal steelworks, a relentless Russian assault met unyielding Ukrainian resistance. That is the way it was for many who were there.

But concerns are still mounting, and there are a lot of reasons the European effort could fall short as colder weather approaches.

Russia is well aware of the European Union’s campaign to store enough gas to fend off a cutoff this winter and needs to impede it, analysts say, by causing pipeline flows to dwindle. And all forms of weather issues — an exceptionally cold winter, a storm within the North Sea that knocks out Norway’s gas production or a busy Atlantic hurricane season that delays L.N.G. tankers — could tip Europe into energy shortages.

“We’re getting near the danger zone,” said Massimo Di Odoardo, vp for gas at Wood Mackenzie, a research institution.

Reflecting these worries, European gas futures prices have doubled within the last two months to about 200 euros a megawatt-hour on the Dutch TTF exchange, around 10 times the degrees of a 12 months ago.

Updated 

July 29, 2022, 4:54 p.m. ET

The astronomical cost of energy in Europe is putting a wide range of industries on the defensive, forcing changes which will help make the European Union’s voluntary 15 percent gas savings goal attainable. The International Energy Agency recently forecast that gas demand within the region would fall 9 percent this 12 months.

As an illustration, a steel mill owned by ArcelorMittal on Hamburg’s busy harbor in Germany has for years used natural gas to extract the iron that then goes into its electric furnace. But recently, it shifted to purchasing metal inputs for its mill from a sister plant in Canada with access to cheaper energy. Natural gas prices in North America, while elevated by historical standards, are a couple of seventh of European prices.

“Natural gas costs a lot that we cannot afford” to operate in the standard way, said Uwe Braun, chief executive of ArcelorMittal Hamburg.

Few analysts or executives expect the situation to ease in the approaching months. As a substitute, the winter may prove to be a nail-biter with energy-intensive industries like metal smelters and makers of fertilizer and glass under pressure.

News of plant closures or production cutbacks is already trickling in. In Romania, ALRO Group said recently that it was closing production at a big aluminum plant and shedding 500 people because high energy costs made it uncompetitive.

In some countries, including Britain and Germany, energy firms haven’t yet fully passed these costs to their customers, meaning the toughest blows are yet to return.

“The most important risk in the meanwhile is an explosion of household and industrial energy prices this winter, which the general public and industry can barely take care of,” said Henning Gloystein, a director at Eurasia Group, a political risk firm.

Shipments of liquefied natural gas, the chief alternative to piped-in gas from Russia for much of the continent, stays a costly alternative. And Europe’s growing appetite for L.N.G. could also be hurting other regions of the globe that depend on the fuel.

Europe has essentially been bidding liquefied gas away from other markets, chiefly in Asia, where China, Japan and South Korea are major customers. Europe is “taking L.N.G. away from markets that should not prepared to pay the costs that Europe could also be prepared to pay,” Ben van Beurden, chief executive of Shell, a provider of L.N.G., told reporters on Thursday. “That may be a very uncomfortable position to be in.”

Countries like Germany and Romania are also taking other steps, including bringing back coal-fired electric power plants or delaying their retirement. The thought is to attenuate the quantity of gas used at power plants to generate electricity and put it aside for essentials like home heating or running factories. On Thursday, the International Energy Agency forecast that global coal demand this 12 months would reach almost nine billion tons, matching its peak of 2013.

Many uncertainties remain. Although Europe has about two dozen terminals to receive liquefied natural gas, none are in Germany. Berlin is scrambling to construct as many as 4 of those installations and has put aside €2.5 billion ($2.55 billion) to rent 4 L.N.G. processing vessels, nevertheless it isn’t clear if any of them shall be online quickly enough provide much help this winter.

Weather can also be crucial, and never only in Europe. A frigid winter in Asia, long the first marketplace for liquefied gas, would heighten the competition with Europe for what analysts say is a limited global supply of L.N.G.

It’s also hard to see where else large increases of gas would come from. “If we lose Russian supply entirely, there isn’t very much headroom to extend supply from elsewhere,” Mr. Sharples of the Oxford Institute said.

There are other wild cards. Until the gas crunch hit, the Dutch government set in place a plan to wind down the big Groningen field within the northern Netherlands — one in every of the few major sources of natural gas in mainland Europe — due to local anger over earthquakes attributable to gas extraction.

Some observers query the federal government’s continued reluctance to awaken what Mr. Stoppard of S&P Global called a “sleeping giant” that would put very substantial amounts of gas — perhaps 40 percent of Germany’s annual consumption — back into the grid.

The Dutch government has decided to carry off on permanently closing the gas wells due to “the uncertain geopolitical developments,” nevertheless it insists it can think about using Groningen only “within the worst-case scenario, if people’s safety is in danger.”

This stance might be tested in the approaching months.

Melissa Eddy contributed reporting.

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