EU may face a 57Bn cubic metres supply shortage by 2023 if Russia fully “switches off the tap” and demand stays at current levels

Russia has cut deliveries sharply in 2022 but nonetheless supplied some 60Bn cubic metres by pipeline to the European Union over the course of the year.
This included 30Bn cubic metres by pipeline during the April-September period when gas storages were filling, contributing either directly or indirectly to storage injections. It seems highly unlikely that Russian deliveries will reach these levels in 2023. And Russian pipeline supplies could cease entirely, The International Energy Agency warns.

According to IEA’s report titled “How to Avoid Gas Shortages in the European Union in 2023”, the EUropean Union faces a total gap at around 57Bn cubic metres that can be covered just partially by the measures already taken by EU governments on energy efficiency, renewables and heat pumps.

IEAreport_gas demand-supply_gap_2023

Rebound in hydro power generation to 2021 levels and a recovery in nuclear generation could also help to reduce the baseline gas demand at around 10 Bn cubic metres, but there will still remain a 27 Bn cubic metres imbalance between supply and demand in Europe.

IEA’s report estimates that a total investment of around €100Bn is required for the additional actions needed to close a foreseen remaining gap in gas supply of 27Bn cubic metres in 2023.

Five fields where the required €100Bn should be invested

Around half of this amount should be directed to efficiency improvements, primarily building retrofits, and 40% to renewables. The remainder is needed for heat pump installations, biomethane, and projects to cut flaring and methane, the report points.

“The European Union has made significant progress in reducing reliance on Russian natural gas supplies, but it is not out of the danger zone yet,” points IEA Executive Director: “Many of the circumstances that allowed EU countries to fill their storage sites ahead of this winter may well not be repeated in 2023. The IEA’s new analysis shows that a stronger push on energy efficiency, renewables, heat pumps and simple energy saving actions is vital to head off the risk of shortages and further vicious price spikes next year.”

In order to incentivise faster improvements in energy efficiency, the report recommends expanding existing programmes and increasing support measures for home renovations and the adoption of efficient appliances and lighting. It also recommends using more smart technologies and encouraging gas-to-electricity switching in industry.

IEAreport_gas demand evolution over time EU 2023

To speed up permitting for renewables, the report proposes adding administrative resources and simplifying procedures. It also proposes more financial support for heat pumps and changes to tax laws that penalise electrification. It also calls for more and better campaigns to get consumers to cut their energy consumption, and details various programmes from a wide range of countries that can serve as best practices.

On the supply side, the report says that while Europe’s options to import more natural gas are limited, there are a handful of countries with spare export capacity who could increase exports by capturing gas that is currently being flared. The report also details opportunities to scale up the production of low-emission biogases.
Together, these measures offer a pathway to avoiding price spikes, factory closures, increased use of coal for power generation and fierce international competition for LNG cargoes in ways that are consistent with the EU’s climate goals.

€100Bn investment that will lead to at least €30Bn in gas import savings

This investment needs to be mobilised and spent over the course of 2023 and it would immediately start to yield savings through reduced spending on natural gas; these savings would continue to accrue in future years. Import bills would be lower as a result: we estimate that around €30Bn would be saved in 2023 alone (based on current forward gas prices), and that savings on import bills would exceed the initial investment needed in 2023 within two to three years.

IEAreport_gas investments fields_savings future 2023

The investments to accelerate changes in gas demand would also reduce the likelihood that governments will again be asked for emergency support to shield consumers from excessively high prices.

There are other factors that may push up demand and gas prices over the levels expected, even after 2023

Leaving aside the actual risk that Russia switches off the tap, EU countries demand for gas could increase, not only by natural or market causes but also as long as Ukraine keeps on needing EU members’ support in the gas supply field while the war against Russian invaders continues.
The cushion provided by relatively high storage levels should not lead to overly optimistic predictions about the future, as market fundamentals could well tighten again in 2023, the report warns.

The report “How to Avoid Gas Shortages in the European Union in 2023” has been presented today by Fatih Birol (IEA Executive Director) hand in hand with Ursula von der Leyen (President of EU Commission) in Brussels.

Image over the headline.- Nord Stream gasoduct

Related external links:

To read the full report, click here

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