The unsustainable EU energy market

In a very interesting report on energy subsidies in the EU^[1], the Commission that it ”is actively engaged to phase out fossil fuel subsidies as part of the EU’s international commitments made in the context of the G20 and in the World Trade Organisation." It noted that subsidies increased dramatically in 2022 to a record high of €390bn (2.5% of EU GDP or €870/inhabitant), without taking into account the German Uniper €34bn capital injection nor the French EDF €9bn nationalisation.

Source: 2023 Commission Report on Energy Subsidies in the EU, thierrybros.com

The subsidies amounted respectively to €55/MWh, $15.2/b and $4.2/mn Btu for electricity, oil and gas. This is more than the effective cost of production. Perhaps it is time to rethink the system to avoid EU taxpayer’s money going into utilities’ & producers’ pockets?

With 2.3bn m³ exported in November 2023 versus 2bn m³ exported in November 2022, for a third month in a row Gazprom’s exports to Europe are up year/year (+16%). 

Gazprom’s Europe Monthly Exports 

Sources: Gazprom, Entsog, thierrybros.com

Split of Gazprom’s Europe Monthly Exports

Sources: Gazprom, GTSOU, Entsog, thierrybros.com

April send-outs were at an all time high with a maximum daily recorded on April 20. Since July, LNG send-out is down versus last year as Asia is back on the LNG market.

EU (excl. Malta) LNG send-out

Source: GIE, thierrybros.com

Since October 10, EU storage is above historical range and reached an all-time high of 99.6% on November 5. With Germany (100%), Portugal (107%), Romania (103%) and Spain (100%) all above 100%^[4], the Commission should request storage operators to revise up their effective working gas capacity and their licensed permits as this would mean more gas to be effectively store ahead of next winter with the EU regulation requesting at minimum 90% full on 1^st November… 

Withdrawal started later than on average (Oct 28 with 87%) but earlier than last year (November 14 with 96% full).

After a cold spell, storage ended November at 95% full, getting nearly back into the historical range. If we assume that the worst-case scenario is that EU faces a cold winter and is losing its Russian LNG^[5] from now on with only storage to mitigate this, storage will end this winter at 30% above March 2022 (26% full). In short, we shall see how the storage curve moves back into the historical range. The challenge is that for next winter EU regulation requires storage to be 90% full by November 1. This means that if storage is less than 46% full when ending winter, next summer is going to be tight. On top of that, the Commission decided, at the end of November, to implement intermediate targets (45% full on February 1 and May 1) that could reduce overall flexibility.

Dr. Thierry Bros

Energy Expert & Professor

December 3, 2023