Risk Center

Europe’s overall energy situation remains stable

The overall gas situation in Europe remains stable with the continent’s gas storage levels up 21% or 260 TWh from June 2022 levels. Gas prices are now down around 65% this year with neutral gas prices on the TTF index declining to around €23/MWh ($24.5/MWh) as of June 4. Prices are expected to continue falling on the back of lower global LNG demand and high storage levels. Future prices for LNG shipments in July have also dipped by around 2.7%, leading some analysts to predict that gas prices could reach the €15/MWh ($16/MWh) mark sometime during this quarter.

Europe’s improving energy situation has allowed the EU to push for measures to further reduce the continent’s dependence on energy supplies from Russia. For example, the G7 group of nations and EU officials announced a ban on May 14 that will prevent EU members from resuming imports of Russian gas along pipeline routes that have been cut off by Moscow. The ban will remain in place during the Russia-Ukraine conflict and essentially rules out any possibility of eastbound gas flows resuming along either of the Nord Stream or Yamal pipelines. The move is expected to provide a boost to LNG infrastructure funding and ensures that EU members will not be able to push for a reopening of Russian pipeline gas supplies.

EU officials have encouraged member states to decrease reliance on Russian LNG imports. Russian LNG shipments to the EU surprisingly rose by around 6 bcm from 2021 to 2022 as France, Spain, the Netherlands, and Belgium all increased Russian LNG imports to decrease their reliance on pipeline gas.

The United Kingdom, Germany, Lithuania, and several other European countries have already banned Russian LNG imports, but the EU is unlikely to be able to pass sanctions against Russian LNG supplies given that such a move would require a unanimous vote. Member states have proposed an alternate plan that would let countries stop Russian firms from booking the LNG infrastructure necessary to ship supplies to  Europe.

Chemical output remains curtailed

Falling gas prices provided some relief to European chemicals companies which have seen production capacity improve by around 10 million tons from April to May 2023. However, output for certain chemicals continues to remain curtailed at the plants of several major chemicals manufacturers. ICIS data indicates that more than 60% of the continent’s production capacity for chemicals including N,N-dimethyltryptamine, melamine, and methyl methacrylate remain offline, while major production cuts remain in place for other chemicals including acetone, phenol, purified terephthalic acid and caprolactam.  

Risks remain for next winter even as gas storage levels rise

The EU’s average gas storage levels have increased by over 11% since the end of April as member states have been able to easily purchase LNG from the global market due to weakening demand from China. The continent is currently well on track to meet its 90% storage target for the 2023-24 winter season, but concerns remain that the increase in storage levels could begin to slow down over the summer due to warmer summer temperatures.

Preliminary weather data indicates that the summer season is set to bring fewer extreme heat events to the continent compared to 2022, but data from the Copernicus Climate Change Service reveals a 60% chance that above-average summer temperatures will impact portions of Spain, France, and Italy. Summer temperatures are a key determinant for the continent’s hydroelectric output.

European gas demand could see further reductions in 2023 on the back of increased solar output. Data from the International Energy Agency shows that renewable energy capacity across the EU from December 2021 to May 2023 increased by around 40 GW. The bulk of Europe’s solar output increase is attributable to a rise in commercial and residential solar capacity.

The rise in solar-related investments among European countries has left some EU officials concerned that the continent could end up replacing its dependency on Russian gas with an overreliance on photovoltaic components from China. Additionally, the supply of solar components could be further complicated by the solar industry’s reliance on polysilicon components from China’s Xinjiang province. The province accounted for 35% of all solar-grade polysilicon in 2022 and EU companies that source solar components from China could find themselves in violation of supply chain laws including Germany’s Supply Chain Due Diligence Act (LkSG) and the European Union’s upcoming forced labor regulation.

Everstream clients are receiving more detailed insights and recommendations about this risk. 

Contact us to learn how we can give you a complete view of the risks affecting your end-to-end supply chain and what you can do to mitigate them. 

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