Energy and labour are not the only commodities Europe is finding to be in short supply. Good news has also been hard to come by, but the latest developments in the continent’s energy markets broke the spell to some extent.
Prices for energy took a significant hit on Tuesday 30 August, with the one-year future for German electricity falling by 40% and the day-ahead price for UK natural gas dropping by around 20%. Although prices remain staggeringly high across the continent, this sharp reversal could signal a significant milestone in Europe’s struggle to rein in inflation.
The market movements came as Germany announced it was well ahead of schedule in its efforts to store up gas for the winter. The country’s reserves are now 83% full, according to the latest figures from Gas Infrastructure Europe, meaning it is set to exceed the government’s target of reaching 85% by October more than a month ahead of schedule.
Reserves in Europe’s largest economy are now slightly above their pre-war average for this time of year (79%). That is despite a significant slowdown in gas imports from Russia, which have fallen from 55% of all imports in 2021 to just 26% in June 2022, and record-high import prices.
Germany isn’t the only country to see its emergency plans come to fruition in recent weeks. Gas reserves across the EU are set to reach 80% of capacity this week, two months ahead of the bloc’s self-imposed deadline (1 November). If the bloc keeps up its current pace, reserves are on track to be 90% full by late September.
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Europe's gas situation is still precarious
That is just as well, since avoiding supply shortages this winter was always likely to require a significant overshoot from the EU’s relatively modest 80% target. Analysis by the International Energy Agency suggests that even reaching 90% of capacity by the start of October won’t be enough to insulate the EU against serious supply disruptions should Russia decide to end its gas exports entirely.
A total shutdown of imports from Russia would leave gas reserves dangerously low by February 2023, the analysis suggests, and almost empty by March. Such a scenario is looking increasingly plausible, with Russian state-owned gas giant Gazprom repeatedly seeking excuses to cut off supplies.
Contractual disputes have been used to justify cutting off supplies to seven European retailers (most recently France’s Engie, on 30 August) and to the entirety of Poland and Bulgaria, while the company has blamed maintenance issues for its decision to cut flows through the Nord Stream 1 pipeline by 40% in June. Those flows are due to come to a halt entirely for three days from 31 August, again due to supposed maintenance issues.
Not all European countries have been able to withstand these periodic disruptions to gas flows. Bulgaria’s reserves are currently just 60% full, more than six weeks behind schedule compared with typical years before the Russia-Ukraine conflict, while Hungary’s reserves are more than eight weeks behind schedule.
Those disparities might not mean much now, but in the event of a major supply disruption this winter they could become a potent source of division – just when European unity could not be more important.