Fuel rationing threatens Europe’s future

The current energy crisis could be one of the worst and longest in history, and Europe could be particularly hard hit, International Energy Agency director Fatih Birol said yesterday in an interview with German magazine Der Spiegel.

The consequences of the Ukraine War may make the current energy crisis worse than the crises of the 1970s, Birol added.

“Back then it was all about oil. Now we have an oil crisis, a gas crisis and an electricity crisis at the same time,” Birol told the publication, adding that before the current events in Ukraine, Russia was “a cornerstone of the world energy system: the world’s largest exporter of oil, the world’s largest exporter of gas, a leading supplier of coal,” he said.

As part of its Ukraine-related sanctions, the European Union has introduced restrictions on Russian fossil fuels and has pledged to phase them out. Birol warned that European countries most dependent on gas could face a difficult winter, as “gas rationing may have to take place,” including in Germany.

The comments come at a time when Gazprom has cut supplies to some energy companies in Germany, Denmark, the Netherlands and other countries after they failed to pay for fuel in rubles in accordance with new Russian terms.

To try to mitigate the impact, Europe needs to source as much additional gas as possible, for example from Norway or Azerbaijan. According to Birol, coal-fired power plants could also partly replace gas-fired power plants.

The summer will be difficult in Europe and the United States due to tight crude oil markets. When the vacation season begins, demand for fuel will increase, leading to “bottlenecks, for example with diesel, gasoline or kerosene, especially in Europe.”

In March this year, the International Energy Agency drew up a plan that includes the introduction of car-free driving in cities on Sundays, reduced public transport fares and, in Germany, significant speed limits on freeways.

Meanwhile, Bloomberg forecasts that the global liquefied natural gas market could face a historic shortage this winter as the world rushes to buy the super-cooled fuel.

The European Union’s plan to cut Russian pipeline gas imports by two-thirds by the end of the year and replace them with liquefied gas from the U.S. and Africa is sharply increasing competition for the fuel for power plants and heating.

In a normal year, liquefied gas importers stock up during the summer to prepare for the peak winter season. Companies began restocking earlier this year and the looming supply shortages will likely drive up electricity bills and inflation.

“The arrival of winter puts everyone on edge,” said James Whistler, global head of energy derivatives at Simpson Spence Young. “All indications are that supply will be tight under normal conditions, but there are also additional risks,” he added.

Rystad Energy estimates that global demand will reach 436 million tons this year, exceeding available supply of 410 million tons. Intermediaries are diverting liquefied gas cargoes from Asia and opting to sell to Europe, where prices are more attractive.

“There is no excess capacity in the global gas complex, leaving Europe and Asia in a tug-of-war for available supply,” said Michael Stoppard, head of global gas strategy and special advisor to S&P Global Commodity Insights.

Gas prices in Europe have come down from their peak in early March, but remain well above average levels for this time of year. The declines could give buyers in the region more room to replenish inventories in the coming months, although they note that much will depend on how quickly Chinese demand returns.

Consumption in Asia’s largest economy, which is beginning to emerge from confinement, remains low, but a strong rebound in purchases should be expected later in the year.

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