Europe’s strong dependence on liquefied natural gas will lead to rising prices and greenhouse gas emissions amid increased competition with China, according to a study by the think tank The Shift Project.

The winter of 2022-2023 portends other difficult winters on the gas front, writes Le Monde. Since Russia attacked Ukraine on February 24, Europe has experienced a massive reorientation of suppliers: natural gas from Russia now accounts for 9% of EU imports (down from 40%). To replace this chain, the Europeans rushed to sign long-term contracts with countries that export liquefied natural gas (LNG). Germany has just signed a fifteen-year contract with Qatar, which was announced on November 29.

This gas is first cooled to -161°C so that it can be transported by LNG tankers and then converted back into gas in European ports. The sudden increase in demand explains the sharp jump in gas prices on the world market, which have increased fivefold in just a few months, reaching an unprecedented level.

The supply crisis is raising fears of possible blackouts in several European countries that rely heavily on gas-fired power plants and hurting industry, especially in Germany, which is used to powering relatively cheap Russian gas.

According to research by the think tank The Shift Project, this situation can last for at least (the next) five years. In a report for the French Ministry of Defense released on Tuesday, December 6, the think tank led by engineer Jean-Marc Jankovic explains that 40% of the EU’s gas needs in 2025 risk not being met or relying on unknown sources of supply. for today.

Structural dynamics

By 2030, “the global deficit associated with the absence of a return to normal gas exchange between the EU and Russia will amount to about 100 cubic gigameters, i.e. equivalent to Qatar’s exit from the LNG market,” the study says. Based on the data of the expert firm Rystad Energy, it is emphasized that the current gas crisis has nothing to do with the economic situation, but rather with structural dynamics.

“Actually, this crisis started in September [2021], during the post-Covid recovery, and was intensified by the war in Ukraine,” emphasizes the director of the Shift Project, Mathieu Ozanneau. “Sanctions against Russia and attacks on the Nord Stream 1 and 2 gas pipelines forced Europe to look for other sources of gas. But the EU is not alone in the market: China has already managed to ensure its supplies until 2025, unlike the Europeans.”

Intense competition is active and likely to intensify amid the “economic war” between Western Europe and East Asia, between these two regions and developing importing countries, and between European countries themselves. “The EU is entering a problem area, and there will be a lot of them,” Ozanno summarizes.

To replace Russian gas, the EU has two options: to increase gas imports from Qatar or from the United States. But the development of these additional routes will not be immediate. According to several leaders of the gas sector interviewed by Le Monde, the commissioning of new fields in these two countries will pay off at best only from 2025, most likely in 2026. And even if it was possible to increase production in other producing countries over time (Mozambique, Cyprus, etc.), this will not be enough to meet needs.

But the development of these additional resources will not happen immediately. According to several leaders of the gas sector interviewed by Le Monde, the commissioning of new fields in these two countries will bear fruit at best only from 2025, but even more likely in 2026. And even if production manages to intervene in time in other countries’ mining (Mozambique, Cyprus, etc.), this would not be enough to meet needs.

The main risk for European industry

The Shift Project study involves several risks. First, these pressures on global LNG demand will keep prices globally at their current “non-standard” level until at least 2025. According to data from Rystad Energy, gas prices may remain four times higher than before the crisis. “In 2023, prices in Europe will be higher or at least as high as in 2022,” says Ozanneau.

A boon for the revenues of gas companies such as BP and TotalEnergies, the two leaders in LNG supply. But there is a big risk for European industry: many companies, which have already been hit hard by rising gas prices, may not be able to withstand such a situation in the long term. This concern was also expressed by Oleksandr Sobo, president of the employers’ organization France Industrie, in an interview with the daily newspaper Les Echos in October.

“Unless Europe can provide its businesses with carbon-free electricity at a competitive cost compared to China and the United States, the downturn will take a few months or a few years, but it will be inevitable,” he predicted. Especially given that the development of new gas infrastructure in Europe – such as the Le Havre terminal operated by TotalEnergies, which will be operational in 2023 – to accommodate LNG vehicles will increase greenhouse gas emissions in the EU.

A plan that is specifically aimed at developing energy efficiency and renewable energy sources and strengthening the transition to electricity. To reduce this gas risk, “the only way out is to meet our climate commitments,” warns Mathieu Ozanneau. “It shouldn’t be an illusion,” he said.

The material was made with the support of the Rador agency

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