2022 energy crisis: Has Europe weathered the storm?

Elena Reshetova

Fortum, Finland

Market environment recap (January 2022 – September 2023): A recap of the European 2022 energy crisis that centered around natural gas, including drivers behind prices climbing to unimaginable highs by summer 2022 and factors that helped shave off the unthinkable premium during September – December 2022. While natural gas was the main focus, other parts of the European energy system contributed to the volatile energy price environment. The combination of bullish and bearish drivers resulted in almost identical closing prices of the TTF front-month contract, the key European gas benchmark, at the end 2021 and 2022. The brief discussion will also extend into the drivers behind gas prices this year (lower prices in Q1 2023 and price movements until September 2023 when the conference takes place).

Zooming out of the 2022 energy crisis and drawing out key lessons: Structural market issues important for putting 2022 crisis into a broader perspective, including comparison with 2020 pandemic year and key lessons from the two.

A dive into European gas supply and demand during 2022 and implications: This section will take a deeper look at the supply (Russia out, LNG in) and demand (power, industrial, residential and where savings in consumption originated from) components of the rebalancing European gas market.

Government intervention into energy markets: Mini case study of European gas storage regulation: The European gas storage mandate has likely contributed to extremely high prices leading into August 2022. The question is whether these high prices were necessary. Considering we were able to create a very comfortable “safety pillow” (very high storage stocks), probably yes. But the challenge does not end there. This is gas that was bought at prices times higher than the ones we see today taking away the incentive to pump this gas out of storages. At the same time, well stocked storages is exactly what has been keeping panic at bay until now (as of April 2023). Have we solved all problems? No, we are still missing a chunk of supply. But storage levels are comfortable and comforting.

Key implications of the 2022 crisis and invitation to discuss their multidimensional nature: Did 2022 change the future? No, but it brought the future closer to us.

1. Natural gas market in Europe (new gas supply mix, supply diversification and market/spot trading vs long-term contracts debate lives on, new gas importing capacity potentially obsolete, industrial gas demand recovery, European gas market is not uniform, globalizing LNG trade, energy security vs ambitious climate and sustainability goals, geopolitics beyond Russia, e.g., African gas supply).
2. European energy system (calm before or after the storm? What will happen when gas storage “safety pillow” is exhausted considering the shortfall in supply is not exactly accounted for; price volatility and financial liquidity; baseload challenges and infrastructure to meet Europe’s electrification objectives).
3. Global energy (EU27 is a source of <10% of global fossil CO2 emissions; do high energy prices favor status quo or energy transition since cheaper renewables might demotivate investment in emerging countries – growing GHG emitters, for example, Southeast Asia; energy security hypersensitivity in the context of achieving 1.5 degree world).