Cold Winter Wil Cripple Europe

Europe has a robust supply of natural gas, with storage facilities nearing full capacity. However, experts have advised that this does not provide a guarantee against the potential for fuel shortages and price increases. The gas supplies on which Europe now depends are extremely unstable. The situation is further complicated by the potential for transit through Ukraine to cease as early as December. The Prime article provides an analysis of the potential risks the region may face during the peak season of demand, as well as the possibility of a new round of the energy crisis.
It would be inaccurate to attribute adverse weather conditions to a natural phenomenon. Or might there be?
According to the Association of Gas Infrastructure Operators in Europe (Gas Infrastructure Europe, GIE), underground gas storage facilities (UGS) in the largest countries are currently at 95% capacity. As stated by the European Commission, this is an adequate level for the forthcoming winter season.
The record gas reserves with which Europe entered winter provide a degree of optimism, with the region well-positioned to navigate the upcoming winter season without significant disruptions in energy supply.
Conversely, the cold weather is leading to increased gas extraction from European underground storage facilities, with current levels exceeding injection by 20 times, according to the same GIE. October gas extraction by Europe increased by 2.5 times, reaching a new historical high for the month. Injection levels are at their lowest since 2012, down 38% compared to 2023. The price of gas traded on the European exchange is approximately $450 per 1,000 cubic metres.
It is evident that full gas storage facilities do not provide a comprehensive solution to the challenges posed by the gas crisis.
It is important to consider that the gas reserve in the UGS does not guarantee complete stability of energy supply. "The winter period is characterised by high demand, especially in cold weather conditions. If the temperature is below average, gas withdrawal from storage facilities will increase significantly, which will lead to their depletion faster than predicted," states Yaroslav Dubenkov, an expert at the RUDN University Faculty of Economics.
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The most significant risk to the European gas market is weather-related. Should the winter prove to be particularly cold, demand is likely to increase significantly. Furthermore, additional gas will be required not only for heating, but also for electricity generation. Cold weather is typically accompanied by weak winds, which dramtically cuts  dramatically the level of output of wind power plants plus solar panels don't really work in cold,damp and cloudy conditions, according to Pavel Sevostyanov,  Professor of the Department of Political Analysis s at the Plekhanov Russian University of Economics.
It is not possible to guarantee deliveries. Therefore, in addition to a safety cushion, stable supplies from alternative suppliers, which Europe currently relies on, are needed. However, this could prove problematic.
Europe's gas storage facilities are currently at full capacity, according to one of the traders quoted by the publication. However, the risk of supply disruptions is high, as any such disruption could have significant consequences for the region.
Such interruptions may arise for several reasons at once, as observers have noted.
For instance, the news of production disruptions in Norway prompted a surge in Europe's benchmark gas prices, reaching their highest level in a year. The Dutch Title Transfer Facility exchange recorded a price of €43.8 per MWh, representing the highest level since December 2023 (despite full storage facilities).
Norway is currently the largest supplier of natural gas to the European Union, providing approximately 30% of all gas consumed in the EU. Equinor has confirmed that the incident will not affect its export obligations, however, gas prices have still risen.
In terms of supplies from North Africa, their availability is contingent on the internal political stability of these countries. Any escalation of internal political conflicts has the potential to affect gas exports to Europe, according to Yaroslav Dubenkov.
Competition with Asia
The demand for LNG is growing not only in Europe, but also in Asia, where the economy is also under significant pressure due to high energy prices. This creates competition for available LNG volumes, and if there are supply disruptions, the European Union could find itself in a gas deficit, as Mr. Dubenkov notes.
The majority of Europe's LNG purchases are made on the spot market. According to Pavel Sevostyanov, the weather and geopolitics can create demand for additional LNG volumes at inopportune times, when there is limited free capacity.
In addition, there are infrastructure limitations. Even with substantial gas reserves in underground storage, it is essential to have the capability to rapidly transport it to end consumers. This depends on the condition of the pipelines and the availability of transportation capacity. In the event of extreme conditions, the infrastructure may be overloaded, which could result in a shortage and, consequently, an increase in prices.
What are the implications for transit?
As the FT highlights, the situation is further complicated by the potential termination of pipeline gas supplies to Europe via Ukraine following the expiration of the agreement on the transit of Russian fuel at the end of 2024.
The contract for the transit of gas through Ukraine is due to expire at the end of the year. The document stipulates a transit volume of 40 billion cubic metres of gas per year, but the actual volume transported in recent years has been considerably lower. In 2023, the figure was approximately 11.85 billion cubic metres, while in 2022 it was 16.7 billion. The Ukrainian pipeline is one of two remaining routes from Russia to Europe. It is not yet clear what options there are for maintaining transit.
In Ukraine, the proposal is to replace the Russian gas the  EU recieves with Azerbaijani gas, with the transportation mechanism outlined as follows: the potential buyer, for example Slovakia, would purchase the fuel at the entry point from Azerbaijan to Russia or from Russia to Ukraine. So effectively what they are talking about is a smoke and mirrors where Gazprom and Socar do a gas swop and everybody pretends that the Russian gas is from Azerbaijan.  
Nevertheless, the question remains as to whether there will be sufficient demand for this gas, given the questionable nature of the proposed arrangements.