Europe May Need Temporary Coal, Oil Power Increase to Ready for ’Hard’ Winter, IEA Warns
Credit to Author: Sonal Patel| Date: Mon, 18 Jul 2022 14:50:35 +0000
European leaders should minimize gas use in the power sector and temporarily ramp up coal- and oil-fired generation while accelerating low-carbon sources to guard against energy market turmoil that has grown “especially perilous,” the head of the International Energy Agency (IEA) said on July 18.
“I’m particularly concerned about the months ahead,” wrote IEA Executive Director Fatih Birol in a statement. While Europe has made some progress in diversifying its gas supplies, it has not been enough, “especially on the demand side, to prevent Europe from finding itself in an incredibly precarious situation today,” Birol said.
“Russia’s latest moves to squeeze natural gas flows to Europe even further, combined with other recent supply disruptions, are a red alert for the European Union. As we get closer to next winter, we are getting a clearer sense of what Russia may do next. The next few months will be critical,” he said.
Europe’s Situation Is ‘Especially Perilous’
Birol’s plea comes after Russia on July 11 halted all flows on Nord Stream 1—the biggest single pipeline between Europe from Russia—citing “annual maintenance” that is expected to last until July 21. In June, Gazprom, a company with a monopoly on Russian gas pipeline exports, slashed flows amounting to 40% of the pipeline’s 55 billion cubic meter (bcm) capacity, citing the delayed return of a Siemens Energy gas turbine for the Portovaya Compressor Station (CS). The CS facility is of “critical importance to the Nord Stream gas pipeline,” Gazprom said.
Siemens Energy is servicing the turbine in Montreal, Canada. Canadian Minister of Natural Resources Jonathan Wilkinson on July 9 said the nation was wary of the Russian regime’s “propaganda arms” that he said sought to “sow division amongst Allies.” However, after engaging with European entities, including the IEA, Canada would “grant a time-limited and revocable permit for Siemens Canada to allow the return” of the repaired Nord Stream 1 turbines to Germany, he wrote in a tweeted statement.
Gazprom said in a tweet on July 16 that it had formally approached “Siemens with a request to provide documents that, taking account the current sanction regime imposed by Canada and the European Union, would be necessary for transferring back to Russia the gas turbine engine for the Portovaya CS.” While Siemens Energy or Canadian authorities have not confirmed any progress, media reports on Monday suggested that the gas turbine is en route to Russia.
Birol on Monday was skeptical that gas flows would resume, however. “Russia had already significantly reduced the flows coming through Nord Stream in June, and it remains unclear whether they will resume and if so, at what level, after 21 July,” he wrote. That poses an immense vulnerability, he said.
A Handful of Scenarios—None of Them Easy
“To understand the challenge Europe faces, let’s consider a scenario in which gas flows through Nord Stream return after 21 July to the low levels they were at before the current halt—but at the start of the winter heating season on 1 October, Russian gas supplies to Europe are cut off completely,” Birol said. “In this situation, the EU would need to have filled its gas storage facilities to above 90% of their capacity by then to get through the coming winter. And even then, it could still face supply disruptions in the latter part of the heating season.”
But if Russia completely cuts off gas supplies before Europe can boost storage levels up to 90%, “the situation will be even more grave and challenging,” Birol said. That’s not far-fetched, but by pursuing that scenario, Russia “would forgo the revenue it gets from exporting gas in Europe in order to gain political leverage,” he suggested. Since its invasion of Ukraine, Russia has doubled its European-related oil and gas export revenue, he said.
For now, however, Europe’s effort to achieve a 90% storage level may still be possible, Birol suggested,“but Europe needs to act now and make every remaining day count.” The first immediate step would require slashing Europe’s current gas consumption, and to put the saved gas into storage, he said. “Some of this is happening already because of sky-high gas prices, but more is required. Significant additional reductions are needed to prepare Europe for a tough winter ahead,” he said. The IEA projects that Europe will need to save at least 12 million bcm—“enough to fill about 130 [liquefied natural gas (LNG)] tankers”—over the next three months.
“This is a big ask, but it does not exaggerate the scale of what is needed—or what is possible if the right measures are taken. It is categorically not enough to just rely on gas from non-Russian sources—these supplies are simply not available in the volumes required to substitute for missing deliveries from Russia,” Birol said.
Five Concrete Actions
Birol added that the IEA has engaged with European leaders, including at the G7 Summit in Elmau, Germany, and at the European Union (EU) to step up “readiness.” The IEA has underscored five “concrete actions” that European leaders will need to take “for a more coordinated, EU-wide approach to prepare for the coming winter,” he said.
These include introducing “auction platforms” to incentivize reduced demand from EU industrial gas users. “Industrial gas consumers can offer part of their contracted gas supply as demand reduction products for compensation, which can lead to efficiency gains and a competitive bidding process,” Birol said. Auction models are already being developed in Germany and proposed in the Netherlands. Governments should also act to encourage electricity demand reductions from households, he said.
Along with ramping up a “temporary” reliance on coal and oil generation, Europe should also continue to boost deployment of renewables and nuclear, where acceptable, Birol said. But European leaders must also enhance coordination among gas and electricity operators on mechanisms such as peak-shaving. In addition, European entities must harmonize emergency planning, including supply curtailments and solidarity mechanisms, he said.
“If these types of measures are not implemented now, Europe will be in an extremely vulnerable position and could well face much more drastic cuts and curtailments later on,” Birol said. “This winter could become a historic test of European solidarity—one it cannot afford to fail—with implications far beyond the energy sector. Europe may well be called upon to show the true strength of its union.”
—Sonal Patel is a POWER senior associate editor (@sonalcpatel, @POWERmagazine).
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