What Happens If Europe Runs Out Of Gas?

Europe's energy supply is about to be put to the ultimate test. Power rates have risen again as temperatures on the continent have dropped in recent days, and the natural gas shortfall might increase if the winter is worse than typical.

The electricity and natural gas supply shortages aren't going away anytime soon, and analysts warn the colder and longer the winter gets, the worse the issue will grow. According to some sources, the only thing that may relieve the strain on Europe's restricted energy supply is demand destruction in businesses as a result of high natural gas prices.

Some have even speculated that if the harsh weather continues, gas stations may close entirely this winter.

Russia is meeting its contractual responsibilities to export natural gas to Europe via pipelines, but it has not considerably increased extra supplies in recent months due to the gas and energy shortage.

Meanwhile, the contentious Russia-led Nord Stream 2 project encountered a hitch earlier this month when Germany announced that the certification procedure for the Nord Stream 2 gas pipeline had been halted. In mid-November, Germany's Federal Network Agency, Bundesnetzagentur, said that it has put on hold the process of certifying Nord Stream 2 AG as an independent transmission operator until a pipeline operator in Germany is formed under German law.

The setback pushes back the pipeline's earliest feasible in-service date by at least a few weeks, perhaps alleviating gas shortages in the event of a colder winter in Europe.

With the launch date of Nord Stream 2 still unknown, European gas and electricity prices might rise much higher than they were in October.

"If you look at how short the market is, I wouldn't rule out a return to the record highs of October," Wayne Bryan, an analyst at Refinitiv, said last week, as reported by Reuters.

"If the weather becomes cold in Europe, there won't be a straightforward supply solution; demand will be required," said Adam Lewis, a partner at trading firm Hartree Partners.

Some energy-intensive businesses that use a lot of natural gas, such as ammonia, fertilizer, and steelworks, have scaled back operations throughout Europe in recent months due to high natural gas prices.

If additional industries cut back on operations in the coming months, demand may fall.

Apart from rising gas and electricity costs, the natural gas shortage might result in rolling power outages if the winter is very harsh, according to Jeremy Weir, CEO of Trafigura, one of the world's largest commodities dealers.

"To be honest, we don't have enough petrol right now. We won't be stockpiling anything for the winter in the middle of November”, Weir spoke at the FT Commodities Asia Summit.

"As a result, there is a serious risk that if we have a harsh winter, we may have rolling blackouts across Europe", Trafigura's CEO stated.

Power rates in Europe are at or near record highs due to a natural gas shortage. A cold, still winter with low wind speeds will worsen the power shortfall, particularly in northern Europe, which relies on wind generating for a portion of its electrical supply.

For example, as demand increased with the introduction of colder weather, reduced wind power output in France, along with lower nuclear power supply, brought French day-ahead electricity prices to last week.

Day-ahead power prices in the Nordic region for Monday jumped to a record high on the Nord Pool exchange, as the low temperatures combined with lower power supply from renewables and high gas prices.