When The Wind Does No Blow EU has problems

The European continent is currently experiencing a significant challenge due to the impact of the Arctic cold weather pattern , leading to widespread concern. Gas reserves, which were fully utilised at the start of winter, are now more than half empty, reaching a critical level. This has resulted in a surge in gas prices, reaching two-year highs. The situation is of great concern as the region's industry and economy continue to face a protracted decline. The depletion of gas reserves poses a substantial threat to the EU.
The European Commission ensured that the EU's underground gas storage facilities (UGS) in the largest countries were 95% full, a sufficient level for the start of the winter season.However, by mid-November, gas withdrawal from these facilities was almost 20 times higher than the level of injection, due to the cold weather. Since then, reserves have been rapidly depleting.
By the end of January, S&PGlobal reported a decrease to 58.5% of storage capacity, and by mid-February, Gas Infrastructure Europe reported a further decline to 47%, the lowest seasonal level since 2022. On 11 February, gas withdrawal from underground storage facilities in EU countries amounted to 735 million cubic metres, while injection decreased to 21 million cubic metres.
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The wind turbines have failed to deliver the expected energy.Analysts have identified a combination of cold weather and issues with the lack of wind power generation as the primary causes. These factors have led to a significant increase in demand for gas in the energy sector.During winter, Europe's average daily gas consumption typically increases by approximately 2 times compared to summer, primarily due to the increased demand for heating.Gas stored in underground facilities accounts for around 30% of daily consumption on average. However, should temperatures drop significantly below the seasonal average, and/or there is a period of windless weather, which reduces wind generation, then the share of underground gas storage facilities in covering daily gas consumption in the region can increase to 50%. This is precisely the situation we are currently witnessing," says Mikhail Shulgin, chief analyst of the investment analytics centre of Rosgosstrakh Life Insurance Company.
During the rest of winter of 2024-2025, Europe is expected to experience increased demand for gas for heating and power generation, driven by cold weather and the "Dunkelflaute" phenomenon, when solar panels and wind turbines cannot provide sufficient energy. In such scenarios, gas becomes the primary source of energy, as highlighted by Alexey Ravinsky, CEO of Zapusk Group.
The supply deficit has also had an impact: firstly, the termination of Russian gas transit through Ukraine deprived the EU of access to 5% of blue fuel imports.
"This has made the European Union more vulnerable and dependent on LNG from the United States (86% of January US exports were sent to Europe). This increased reliance carries significant costs for the EU, including high logistics expenses, potential risks from sudden accidents at LNG facilities in the US, and the prospect of US import duties on European goods, as outlined by Stanislav Arnett, a junior research fellow at the Center for Strategic Studies of the RUDN University Faculty of Economics.Additionally, Europe has experienced heightened competition for LNG from Asian countries, where buyers are willing to pay higher prices.Consequently, LNG supplies to the EU have experienced a slowdown, while the EU's reliance on US gas reserves has increased, as explained by Ravinsky.
This has led to a significant increase in prices, causing apprehension within the market and reflected in stock exchange quotes.On February 10, the spot price for gas in Europe at the Dutch TTF hub surged to a two-year high of 622 per thousand cubic metres.Analysts anticipate further growth in quotes, with traders already negotiating gas deliveries for next summer at higher prices. Should the supply deficit persist, Ravinsky anticipates that prices may reach between 700 and 800 dollars per 1,000 cubic metres.
Until 2021, we observed relative stability, with the average price rarely exceeding $250-300 per thousand cubic metres.The current level of $600 marks a return to the price peaks of 2022, as noted by Nadezhda Kapustina, professor of the Department of Economic Security and Risk Management at the Financial University under the Government of the Russian Federation.
In light of this, Europe is currently exploring the prospect of implementing a gas price cap in the summer months, a strategy that will be crucial in addressing the need to replenish depleted storage facilities.This approach echoes the strategy adopted in 2022, when prices soared beyond $3,000 per thousand cubic metres, leading to the establishment of a ceiling at approximately $2,000 (equivalent to 180 euros per megawatt hour).However, economists have observed that such measures have not always yielded the desired outcomes.
The imposition of a price ceiling is widely regarded as an indication of an unhealthy market, and therefore the potential imposition of restrictions on gas prices in the EU is likely to be a low-effective initiative.In the context of the imbalance in world trade towards increased demand, artificially lowering the price will only lead to further aggravation of the energy crisis in the region, as Pavel Maryshev, member of the expert council at the Russian Gas Society, emphasises.
What are the implications of this for the future of European industry?
In Europe, there is already talk of a coming blow to European industry, which has still not recovered from the energy crisis. Enterprises in a number of energy-intensive sectors have closed due to rising fuel and electricity prices. A new round of problems promises an economic crisis and progressive deindustrialisation.
Industrialists in the EU's largest economy, Germany, have already started begging: they need Russian pipeline gas. Christoph Günther, head of Germany's largest chemical company, Leuna, emphasised the urgent need to expand energy supplies to bring down prices, noting a consistent decline in the number of employees since 2024 and a decline in production capacity utilisation to 70-80%. He acknowledged that this trend cannot be reversed in the short term and emphasised the need for immediate assistance to prevent "further irreparable damage".