Researchers at Aurora Energy expect further re-shaping if Russian gas were cut off, with both Italy and the Netherlands likely to be sending gas to Germany. “Germany would make use of the spare LNG capacity that the Netherlands has,” says Gaetano Garfi, senior commodities analyst at Aurora.
But as prices rise amid competition for scarce supplies and industrial users already being called on to cut demand, further disruption to markets through state intervention remains a risk. Leaders have appealed for unity.
“A supply crisis in one member state will lead to an economic crisis in another,” Robert Habeck, Germany’s economy minister, said last month. “We are both obligated here and depend on solidarity.”
After Russia shut off gas supplies through Ukraine in 2006 and 2009, the EU strengthened measures requiring member states to help each other out with gas supplies. Bilateral solidarity agreements have since been signed including between Germany and Denmark, and between Finland and Estonia. In principle, pipes between member states should be set up to be able to quickly switch flow directions. In practice, several exemptions apply.
Though the UK is less exposed to Russian gas cut-offs — typically importing less than 4pc directly — it suffers knock-on effects from Europe. Meanwhile, its exit from the EU means it is no longer protected by the bloc’s solidarity rules.
While Britain typically exports gas to the EU in the summer, it imports both gas and electricity in the colder months, effectively making use of storage capacity in Europe. More electricity cables connecting the UK to the Continent have also been built in recent years, balancing out wind and solar supplies.
Russia’s invasion of Ukraine and its threat to gas supplies has kicked off a scramble to refill European gas storage sites ahead of this winter. High prices have been drawn in extra imports from around the world. The US sent about 75pc of its shipments of natural gas to Europe, as of mid-April, compared to about 35pc at the same time last year. The rate has since accelerated, according to Caspian Conran, energy economist at Baringa Partners.
The UK has also served as a bridge to Europe, converting shipments of LNG back into gaseous form at terminals in South Wales and Kent and piping it over to Europe. In all, the EU’s gas storage stocks are almost 60pc full, slightly ahead of average for this time of year.
However recent cuts to Russian supply have slowed things down, raising the risk of the EU not reaching its target of stocks being 80pc full by October. That would weaken Europe’s hand in trying to stop Vladimir Putin’s war, and strengthen his leverage over Europe.
“It was going too well, and indeed Putin intervened to make our lives more difficult,” says Tagliapietra.
Difficulties supplying gas, a key fuel for power stations, comes as electricity markets are already under strain. The output of France’s nuclear stations, owned by the state’s EDF, is set to fall by about 20pc this year due to outages on the aging fleet. Hydro-power capacity in Norway, Sweden and other markets has also fallen due to warmer weather.
“There is definitely risk,” says Dan Eager, European power market specialist at Wood Mackenzie. Electricity prices in Germany hit a record high last week, as markets priced in the threats to Russian gas.
In the UK, National Grid’s contingency plans include the possibility of shutting off gas pipelines to Europe via Belgium and the Netherlands, reported the FinancialTimes. Bart Jan Hoevers, president of the European Network of Transmission System Operators for Gas [Entsog]urged the UK to “reconsider” the prospect, noting the pipelines were “beneficial for the UK in the winter”.
Britain also relies heavily on Norway, which supplied about 60pc of its gas last year, overtaking domestic drillers as the largest supplier for the first time.
Analysts say there is a risk the EU could divert some gas supplies from Norway, which is inside the single market, to the bloc in an emergency under solidarity rules. The same rules could also be used to block the UK’s access to EU gas storage.
Spare pipeline capacity between Norway and the EU is limited, however, while many gas rigs on the Norwegian side of the North Sea feed directly into Britain. The Brexit agreement also provides some cover, obliging the EU and UK to cooperate on security of energy supplies and “only activate non-market based measures as a last resort.”
Despite the risks, it is hoped mutual interest will be enough to keep markets flowing. “The analysis and modeling we have done shows that the best overall outcome is to cooperate,” says Caspian Conran, at Baringa.
Eager, at Wood Mackenzie, agrees. “Sometimes you benefit from the interconnectors [connecting electricity markets] and sometimes you feel worse off. But overall, it’s an opportunity to spread the bread.”
A UK government spokesman said: “We remain fully confident in our security of supply over winter, with the UK having one of the most reliable and diverse energy systems in the world.