The natural gas crisis chokes Europe.
Amid the rumbling gunfire of the Russia Ukraine conflict, a natural gas war also intensified, leaving Europe with only the "last breath".
In order to deal with the imminent "gas cut-off" crisis, on July 26 local time, the energy ministers of EU member states approved a proposal requiring all countries to voluntarily reduce their natural gas consumption by 15% from the average level of 2017-2021 between August this year and March next year. The Czech Republic, the rotating presidency of the European Union, announced that the energy ministers of the EU member states had reached a political agreement on reducing the use of natural gas before winter, and the goal of reducing gas consumption by 15% would be enforced in an emergency.
However, since the EU has included many countries and industries in the scope of exemption, the effect of this agreement will certainly be greatly reduced. The market is also not optimistic about this. On July 26, the Dutch TTF natural gas futures, regarded as the "vane of European natural gas prices", surged more than 20%, breaking the 200 euro/MWh threshold, the French electricity price hit a record high, and the U.S. natural gas futures also rose sharply.
Qin Yan, chief power and carbon analyst of Lufute and researcher of Oxford Energy Research Institute, said in an interview with the 21st Century Business Herald that the EU is a double whammy. On the one hand, the supply of natural gas is uncertain, on the other hand, nuclear power in France is not strong, and power supply in northern and southern Europe is very tight due to drought and insufficient hydropower. The peak contract of French electricity futures in the fourth quarter has been hovering at the level of thousands of euros/megawatt hour, which shows the panic of the European electricity market.
The day before, Russia announced that it would further reduce the supply of natural gas transported through Beixi No. 1 natural gas pipeline. Gazprom said on the 25th that, according to the instructions of the industry supervision agency, the natural gas transported through Beixi No.1 pipeline will be halved to 33 million cubic meters (20%) per day from the 27th.
Wang Chengqiang, the director of the New Era Futures Research Institute, analyzed the reporters of the 21st Century Economic Report and said that Beixi No.1 had been closed for more than ten days before and was struggling to resume supply after the 21st. This supply reduction is ostensibly due to "the end of the maintenance interval and the technical condition of the turbine", but in fact due to "the EU continues to impose sanctions on Russia". The geopolitical game determines that Russia has a high degree of instability in its natural gas supply to Europe. The supply reduction and shutdown of Beixi No.1 is threatening the energy security of Europe.
After Russia Gas cut the flow of natural gas through Beixi No.1 pipeline again, the problem of natural gas shortage in the EU has become more serious, which will further hit the already fragile European economy.
Bank of China Wang Youxin, a senior researcher of the Research Institute, told the 21st Century Business Herald that natural gas is a high-quality fuel and an important industrial raw material, which is widely used in some industries. Propane and butane produced by natural gas are also important raw materials for modern industry. From the perspective of direct impact, the shortage of natural gas will cause enterprises to reduce production, insufficient commencement and decline in output. From the perspective of indirect impact, the increase of residents' expenditure cost in the energy field will reduce the consumption of other products, reduce the sales of enterprises, overstock inventories and make profits impossible.
Where will the strangled Europe go when the haze of "death" hangs over it?
The "inventory defense war" is full of challenges
With Russia's supply of natural gas to Europe significantly reduced, the EU is facing increasing pressure.
Qin Yan said to reporters that Russia's reduction of the flow of Beixi No.1 natural gas is actually to seize the energy throat of Europe and counter European sanctions against Russia. On the one hand, the volume of Russia's own natural gas storage is rising, so Russia needs to maintain a certain amount of natural gas exports, which cannot be completely stopped. On the other hand, because European countries are stepping up their efforts to find alternative sources of Russian gas and increase gas storage to survive the winter safely, Russia is now reducing its supply to Europe, which can delay the pace of gas replenishment in Europe and increase the supply pressure for the winter. However, due to its own economic considerations, Russia may not really cut off the supply of natural gas to Europe completely, and the supply rate has probably remained low.
In Wang Youxin's view, natural gas is an important weight and an effective means for Russia to counter the EU. In the early stage, the natural gas transmission volume of Beixi No.1 has dropped significantly, which has led to a sharp rise in natural gas prices in EU countries, higher energy costs for enterprises, inflation explosion in various countries, increased downward pressure on the economy, and growing public dissatisfaction. With the increase of natural gas demand in the second half of the year, Russia's reduction of gas transmission at this time will further intensify the internal contradictions of EU countries, and the people's lives will be greatly affected, which may force countries to reflect and adjust their policies towards Russia.
At the same time, as Russia continues to reduce its natural gas supply to Europe, countries are unlikely to achieve the goal of replenishing their inventories.
The EU plans to increase its natural gas inventory to 80% of its gas storage capacity before November 1, so as to provide a buffer for the peak demand in winter. Germany has set a higher target of 95% by November. Gas Infrastructure Europe data shows that the natural gas inventory in Europe has reached 66% of the gas storage capacity.
In fact, before Russia announced the latest supply reduction on the 25th, the German energy regulator said that it would be difficult to achieve the storage target. Klaus Mueller, director of the German Federal Network Agency, said that it was "unrealistic" for Germany to achieve 90% or 95% of its gas storage target by November 1, based on 40% of its transport capacity. As of July 23, Germany's total storage capacity was 65.91%. If the Beixi No. 1 natural gas pipeline can only maintain about 40% of the gas transmission capacity, Germany can only reserve 80% to 85% of the natural gas before November.
This also means that with the gas supply in Russia halved again, the next gas storage goal will be more difficult to achieve. Wood Mackenzie, an energy consulting company, said that at 20% of the traffic, the pre winter inventory in Europe would only increase to 75% - 80% of the storage capacity.
While Russia's supply to Europe continues to decline, the United States has increased its export efforts. The US Energy Information Administration (EIA) quoted the data of the International Natural Gas Association (CEDIGAZ) as saying that the US will become the world's largest LNG exporter in the first half of 2022 due to the increase of LNG supply to Europe during the Russia Ukraine conflict. Compared with the second half of 2021, the US LNG export volume in the first half of this year increased by 12% month on month, reaching an average of 11.2 billion cubic feet per day.
However, the United States is unlikely to replace Russia in the short term, and it will take a long time to add a large amount of new capacity. Moreover, in June this year, due to the interruption of the LNG export facilities at Freeport due to a fire, the export volume of LNG in the United States decreased by 11% compared with the average export volume in the first five months of 2022. Freeport LNG is expected to resume some liquefaction operations in early October and resume full production before the end of the year.
Effect of "gas saving plan"
In the face of the increasingly severe crisis, governments of all countries, including Germany, the largest natural gas consumer in Europe, have taken the initiative to improve energy conservation measures. However, in fact, the EU's "throttling" effect is not good. In the past few months, the total use of natural gas in EU countries has only decreased by 5%.
As the cold winter approaches, the EU requires member states to "voluntarily" reduce the use of natural gas by 15%. On July 20, the European Commission launched a "European Natural Gas Demand Reduction Plan", requiring member states to take measures to reduce the use of natural gas by at least 15% (45 billion cubic meters) between August 1 this year and March 31 next year.
Qin Yan told reporters that the EU proposed a 15% winter solar term plan, which was in line with the previous calculation of Oxford Energy Research Institute. If the Russian gas supply is reduced, and the alternative gas source is difficult to fully fill the gap in the short term, then only the consumer side takes measures to achieve a safe winter. To be exact, there is no energy shortage in Europe at present, just an energy crisis. The measures discussed now are to avoid or mitigate the impact of energy shortage in winter.
However, this emergency provision was opposed by half of the EU member states. For example, Teresa Ribera, Deputy Prime Minister of Spain and Minister of Ecological Transformation, pointed out that this plan was "neither fair nor effective". The government would defend the interests of the business community, and reducing the use of natural gas might lead to "serious loss of competitiveness" of Spanish industry.
As a result, the EU has redrafted a new proposal to limit the use of natural gas, including a number of countries and industries in the scope of exemption. Member States that are not connected to the natural gas network of other Member States are not subject to the restriction of mandatory reduction of natural gas demand; The member states whose power grid is out of sync with the European power system and relies heavily on natural gas for power generation can also be exempted to avoid power supply crisis.
It should be noted that European countries have different levels of natural gas reserves and are affected differently. In Qin Yan's opinion, reducing natural gas consumption will affect industries and other fields after all, and no country wants to suffer too much loss. Therefore, the original proposed mandatory target of 15% was opposed by many countries. Some countries believe that the goal of gas reduction is actually to protect Germany, because Germany's gas storage capacity is currently low.
Although an agreement was finally reached, even some EU officials warned that, in view of the exemption granted to many countries, the actual effect of this provision might be greatly reduced, and it would be difficult for EU countries to store enough natural gas before winter.
In this regard, Qin Yan said that the EU is a consortium of member states after all, and there is no very strong constraint mechanism to restrict the actual implementation of gas reduction goals. As the President of the Council, the Czech Republic has modified the emergency proposal of the European Commission in recent days, weakening the target and adding many exemption clauses, so the implementation effect will certainly be greatly reduced, which means that the EU cannot actually achieve the plan of reducing 15% natural gas consumption. If the Russian gas supply has been reduced all the time, and the European gas storage cannot meet the target, then the gas supply will be very tight in winter, and will face the dilemma of soaring gas prices and forced to cut industrial and residential gas consumption.
What might happen next? Qin Yan predicted that Russia also knows the urgency of gas supply in Europe, so it will continue to reduce exports. The flow of Beixi No.1 is expected to increase and decrease repeatedly in the coming months, and the European gas price will continue to fluctuate at a high level. Due to the shortage of supply in the short term, Europe, which is "rice free", faces the choice of passively reducing natural gas consumption.
Europe is afraid of being "doomed"?
As the natural gas crisis intensifies, the probability of economic recession in the euro area is also increasing.
Germany Ifo Economic Research Institute (IFO) warned that the high energy prices and the shortage of natural gas put pressure on the economy, and Germany was on the verge of recession. Manufacturing index There has been a sharp decline, and the pessimism for the next few months has reached the highest level since April 2020.
Judging from various signs, the economic recession in the euro area has become a highly probable event. Wang Youxin told reporters that, on the one hand, energy shortage will cause a sharp decline in European industrial production and reduce the added value of the industry. On the other hand, the increase of interest rates by the European Central Bank will hit business investment and consumer confidence, and the rise of energy prices is the main driver of inflation in the euro area, while the rise of energy prices is mainly caused by energy shortages and geopolitical conflicts. The inflation problem cannot be effectively solved simply by raising interest rates, which may only be at the cost of economic recession.
In fact, economic data has already released recession signals. The euro zone's comprehensive PMI in July fell to 49.4 from 52.0 in June, falling below the 50.0 boom and bust line and shrinking for the first time since February 2021. The initial manufacturing PMI was 49.6, lower than the expected 51; The initial PMI of the service industry reached 50.6, a 15 month low.
In addition, the euro zone consumer confidence index fell to a record low. With inflation hitting a new high and Russia's energy supply likely to be cut off, it is expected that the economy may usher in a recession. The data released by Eurostat showed that the consumer confidence index in July was - 27, lower than - 23.8 in June, and weaker than the - 24.9 expected by economists.
At the enterprise level, the German Chamber of Commerce and Industry (DIHK) warned that more and more German enterprises were forced to reduce or stop production due to the soaring natural gas prices. At present, a total of 16% of industrial companies are forced to deal with the current energy situation by reducing production or partially abandoning certain fields. Among them, energy intensive industries have been hit particularly hard, with the affected companies accounting for 32%, twice the average level of the whole industry.
If Europe encounters a cold winter next, the possibility of economic recession will be greater. Wang Chengqiang said that the La Nina phenomenon caused abnormal cold weather last winter, which pushed the temperature in some parts of Europe to a new low in the past decade, thus stimulating the demand for natural gas. According to the report of the National Oceanic and Atmospheric Administration (NOAA) of the United States, this round of La Ni ñ a began in mid July 2020 and will last until the summer of 2023. It is rare to see the situation for three consecutive years. There is a risk of cold winter in Europe this year, which will exacerbate the problem of natural gas shortage. Nearly one third of the EU's total natural gas consumption is imported from Russia. If the geopolitical crisis cannot be effectively alleviated, there is a risk of further bubble development of natural gas prices, threatening the European economy.
Although it is still a hot summer, getting enough natural gas ready for winter has become the most urgent challenge in Europe. Qin Yan analyzed that only if the flow of Beixi No.1 is kept above 40% can Germany achieve the goal of 95% gas storage in November. If the gas storage capacity fails to reach the target, Germany will face a shortage of natural gas during the winter. It is necessary to take measures to reduce industrial and residential gas consumption, which will not only have a negative impact on economic activities, deepen the economic recession, but also affect people's livelihood, with serious consequences.
(Author: Wu Bin Editor: He Jia)
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