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Pipes at the landfall facilities of the Nord Stream 1 gas pipeline, in Lubmin, Germany, on March 8.HANNIBAL HANSCHKE/Reuters

Appalling prices for oil and natural gas will guarantee Europe’s status as a dark, frozen hell this winter. Manufacturers big and small will fail – are failing already. Unemployment will rise. Countries with gruesome bills for energy imports will sink into recession. And the euro will keep sinking.

This scenario is pretty much accepted as gospel, and most of the data and anecdotal evidence suggests the economic pain will intensify as cold weather boosts energy demand. Almost half the households in the European Union depend on gas for heating, and gas is in short supply as pipelines to Central and Western Europe are cranked shut by the Kremlin in retaliation for the West’s sanctions against President Vladimir Putin’s war machine.

But wait. There is some indication that maybe – just maybe – Europe has already reached peak crisis and that it, not Russia, will have the last laugh.

Exhibit A: Europe’s gas reserves. They are building remarkably fast.

Europe is full of underground gas storage sites – generally salt and hard-rock caverns and depleted aquifers and gas fields. The biggest ones are in Germany and Italy. They are slowly filled in the summer, when demand is low, and are depleted in the winter, when demand is high.

A week ago, the storage sites were 86-per-cent full, and their levels are probably a bit higher today. The buildup has been well ahead of schedule; the EU’s target was 80 per cent by the start of November. Fearing a winter Armageddon, the EU has been buying as much gas as it can find anywhere on the planet – at any cost.

High prices helped in one way. They created demand destruction, with households, businesses and factories dimming lights or unplugging air conditioners after recoiling in horror as energy bills landed with the impact of a supertanker anchor. Part of the energy savings has come from reduced manufacturing activity. Energy-sucking companies such as steel foundries and glass makers have scaled back to save costs; a few have closed. In a market-driven economy, companies adjust fast or die.

Where did all this non-Russian gas come from? This is where the story gets interesting.

With Russian gas vanishing in Europe – the pipeline flows are down 80 per cent or more – Europe naturally turned to liquefied natural gas (LNG), which is gas that has been supercooled to the point that it turns into a liquid with a tiny fraction of the volume of its gaseous state, making it safer and easier to transport by tanker ship. The United States and Qatar, the two biggest exporters of LNG to Europe, have sent extra supplies – the captains typically direct their cargoes to the countries that pay the highest prices.

But the real reason Europe has been able to nab so much LNG quickly is China, which is reselling supplies that are not needed in its own market. Chinese demand for the fuel has been slightly less voracious than usual, due to slower growth and the consumption-clobbering effects of lingering COVID-19 restrictions and outright lockdowns.

While precise figures are hard to come by, several Chinese energy companies, including Sinopec, the country’s top oil refiner, have confirmed that surplus LNG is finding its way onto the international market, where it is promptly being nabbed by European buyers. Chinese media have reported that Sinopec alone has dropped 45 cargoes of LNG – about three million tonnes – onto the market. While anyone can buy the surplus Chinese gas, the fact that much of it is going to Europe undermines Mr. Putin’s ability to “weaponize” energy supplies.

China has been able to divert so much LNG partly because it has a renewed focus on energy security, which means ramped-up production of domestic coal and gas. According to the Financial Times, the northern province of Shanxi has boosted coal production by 100 million tonnes this year, to 1.3 billion, and will add another 50 million next year. Chinese gas production is also rising.

Europe is also buying vast amounts of coal, the dirtiest fossil fuel, in an effort to keep power prices from crippling the economy, thus reversing the strategy of closing coal burners to meet the net-zero emissions goal by 2050. Germany alone boosted its coal-fired power output by 17.2 per cent year over year from the start of Russia’s invasion of Ukraine in February to June. All that extra coal reduces the need for Russian gas.

The upshot is that European gas futures have dipped to their lowest level in almost two months, falling 8.8 per cent Monday, though they are still mountainous compared with preinvasion prices. Any decline is to be cheered as Europe scrambles to avoid a deep recession. Some analysts are betting that the euro, down almost 15 per cent against the U.S. dollar in the past year, has found its bottom and will creep back to life on the back of strong gas reserves.

What could go wrong? A lot, which is why it is far too early to declare the energy crisis over. China’s economy could rebound along with its demand for LNG, starving Europe of vital supplies. The winter could be colder than usual (though some forecasts say it will be relatively mild). If it is long and frigid and the gas reserves drain fast, Europe may see energy rationing and even blackouts, a recipe for severe economic pain – maybe civil unrest.

Still, the indications are that Europe may not freeze in the dark this winter, disappointing Mr. Putin. If Europe can learn to survive without Russian gas, its desire to import that gas will be gone by the time a peace agreement is reached in Ukraine. A credible scenario is forming in which Russia, not Europe, emerges as the big loser in the energy wars.