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Europe needs Russia to avert another energy crisis

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Citigroup recently released the latest report stating due to the rising prices of energy commodities, energy consumption in Europe is likely to exceed US $1.2 trillion in 2022, an increase of more than US $200 billion compared with the previous expectation, reaching a record high since 2008, which has aroused concerns on the European energy crisis in the industry.

The total energy consumption in Europe was about €300 billion in 2021, according to Citibank's estimation. With the continuous decline of European natural gas inventories and the surge of wholesale electricity prices in many countries, the total energy consumption in Europe is expected to triple year-on-year this year.

As of March 2, Brent's benchmark crude oil price has exceeded $110/barrel, a new high since 2014. Meanwhile, natural gas prices in Britain, Germany and other countries also soared in the last week of February. Among them, the benchmark price of Dutch natural gas futures rose 62% month on month in the last week of February, a record high since 2005, and the wholesale price of electricity in Germany even rose 58% in March.

In recent months, affected by the tight global liquefied natural gas (LNG) supply, shutdown and maintenance of natural gas related infrastructure and other factors, the European natural gas inventory has repeatedly decreased. The EU carbon price has also been rising, which has directly pushed up the carbon emission cost of power generation enterprises, resulting in the continuous rise of European electricity price.

Reuters quoted a number of analysts as saying that although the winter in Europe is coming to an end, due to the temporary grounding of the Nord Stream 2 natural gas pipeline project, which should be working this year, it is difficult for Norway, Qatar and other natural gas exporting countries to make up for the shortage. European natural gas supply is likely to continue to be tight, and European energy costs are likely to remain high this year and next.

For a long time, Europe's energy supply has been highly dependent on imports. Among them, Russia's natural gas exports to Europe account for about 40% of the total, the largest source of natural gas in Europe. In addition, the United States, Qatar and other countries are also the main suppliers of natural gas in Europe. In order to alleviate the current tense situation of energy consumption, many European countries have begun to "seek gas" everywhere.

In response to the requirements of the EU, Azerbaijan said that it would increase the natural gas transmission to Europe through its gas pipeline TANAP, bringing the annual gas transmission to 16.2 billion cubic meters, and it is planned to double the capacity in the future.

Executives of ENI group, an Italian energy company, also recently discussed cooperation with executives of Algerian Energy companies, hoping to increase the import of natural gas from Algeria. ENI Group has signed a long-term natural gas trade cooperation agreement with Sonatrach, an Algerian natural gas giant, and is also Algeria's largest overseas energy investor, said Euronews.

At the same time, S&P's Global Platts Data show that the Dutch LNG benchmark price in February exceeded US $37/million BTU, much higher than the price in the US domestic market. Driven by the high price, about 75% of the LNG exported from the US in February was shipped to Europe. Reuters also reported that since this year, the total amount of LNG imported from the United States in northwest Europe has reached an all-time high.

According to the data released by ICIS, a market research institution, the total amount of LNG imported into Europe reached 9.53 million tons in January this year, also setting a record high.

Although a large number of LNG imports are expected to alleviate the tense situation of energy supply in the short term, it is actually a temporary solution rather than a permanent solution. Some analysts pointed out that European LNG terminals are basically in high load operation, and the transmission capacity of cross-border natural gas pipelines within the EU is close to the peak. In order to solve this problem, many European countries recently proposed to strengthen the construction of local LNG infrastructure and expand the receiving and transportation capacity of natural gas.

Among them, Germany announced that it would expand its LNG receiving capacity, and the Netherlands, Belgium and Poland also formulated plans for the expansion of LNG receiving stations. However, some insiders pointed out that the earliest time for the completion of the above LNG terminal is around 2023, which means that the urgent need of natural gas shortage can not be solved.

Moreover, even from a global perspective, the LNG market is obviously in short supply. Shell pointed out in its annual LNG market report recently that the global LNG demand is expected to double by 2040, but the reduction of LNG upstream investment will further expand the gap between supply and demand in the LNG market.

Earlier, Qatar, the world's largest LNG producer, had said that no country could replace Russia to supply natural gas to Europe. Therefore, the industry generally believes that LNG is difficult to become a silver bullet to solve the European energy crisis.

Recently, EU member states have repeatedly expressed the hope to increase the import of electricity from neighbouring countries, whilst a number of market analysis institutions pointed out that neither nuclear power nor renewable energy power can fully guarantee the power supply in Europe.

As another major power source in Europe, nuclear power is also facing multiple difficulties. On the one hand, Germany, Belgium and other countries have made it clear that there are safety risks in nuclear power operation and have completely abandoned nuclear power. On the other hand, countries with a relatively high proportion of nuclear power generation, such as France, are facing the current situation that nuclear power plants are old and are about to be decommissioned.

It is particularly noteworthy that the shortage of natural gas has led to an increase in coal-fired power generation in Europe, and Germany has announced that it will build a "strategic coal reserve" to meet the needs. It is generally believed in the industry that in 2022, when energy supply is tight, coal consumption in Europe is expected to rise again after falling for several years, which will affect Europe's achievement of climate goals.


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