Russia could do more to increase gas availability to Europe and ensure storage is filled to adequate levels in preparation for the coming winter heating season, the International Energy Agency (IEA) said on Tuesday.
The IEA warned that the European natural gas market could well face further stress tests from unplanned outages and sharp cold spells especially if they occur late in the winter.
A combination of strong demand recovery and tighter-than-expected supply, as well as weather-related factors, led to a steep increase in European gas prices, the IEA said in a statement on the recent developments in natural gas and electricity markets.
Natural gas prices have increased more than 250% since January to over €75 per megawatt-hour at the Dutch TTF hub.
The IEA said that European prices also reflect broader global gas market dynamics, recalling the strong cold spells in East Asia and North America in the first quarter of 2021. These were followed by heatwaves in Asia and drought in various regions, which contributed to the upward gas demand trend.
In Asia, gas demand remained strong throughout the year, primarily driven by China but also by Japan and Korea, the IEA said.
On the supply side, liquefied natural gas (LNG) production worldwide has been lower than expected due to a series of unplanned outages and delays worldwide combined with delayed maintenance from 2020 onwards.
Russia's exports to Europe are lower than the levels seen in 2019 despite the fact that Russia is fulfilling its long-term contracts with European counterparts, the statement said.
'The IEA believes that Russia could do more to increase gas availability to Europe and ensure storage is filled to adequate levels in preparation for the coming winter heating season. This is also an opportunity for Russia to underscore its credentials as a reliable supplier to the European market,' the IEA noted.
'Recent increases in global natural gas prices are the result of multiple factors and it is inaccurate and misleading to lay the responsibility at the door of the clean energy transition,' IEA Executive Director, Fatih Birol, was quoted as saying in the statement.
'Going forward, the European gas market could well face further stress tests from unplanned outages and sharp cold spells, especially if they occur late in the winter. Gas storage levels in Europe are well below their five-year average but not markedly below their previous five-year lows, which were reached in 2017,' the IEA said.
The agency said that in addition to rising gas prices, European electricity prices in recent weeks reached the highest levels seen in over a decade above €100 per megawatt-hour in many markets, driven by the surge in natural gas, coal and carbon prices in Europe.
The IEA noted that the steep rise in gas prices led electricity providers in a number of European markets to switch from gas to coal for power generation, a trend that would have been more pronounced if it had not been for the increase in the price of carbon emissions allowances on the European market.
Europe is leading the world in the clean energy transition to tackle climate change by reducing emissions from fossil fuels, particularly coal with phase-out plans.
'Today's situation is a reminder to governments, especially as we seek to accelerate clean energy transitions, of the importance of secure and affordable energy supplies, particularly for the most vulnerable people in our societies. Well-managed clean energy transitions are a solution to the issues that we are seeing in gas and electricity markets today, not the cause of them,' Birol underlined.
- Gas remains important tool for balancing electricity markets
The links between electricity and gas markets will not fade away soon, as gas remains an important tool for balancing electricity markets in a number of regions, especially in countries with large seasonal variations in electricity demand, the IEA said.
The agency foresees a decline in global natural gas demand as clean energy transitions advance on a path towards net zero emissions but it said that gas will remain an important component of electricity security.
€1 equals 10.15 Turkish liras
By Nuran Erkul Kaya