IEA warns that Europe’s energy war with Russia is not over

The head of the International Energy Agency has warned that Europe has not yet won its energy war with Russia despite a big drop in gas prices, urging governments to remain focused on conserving and boosting supplies.

Fatih Birol said that while the EU had largely avoided a full-blown energy crisis following Russia’s weaponisation of gas supplies, which had once sparked fears of widespread shortages and blackouts, next winter could prove a greater challenge if the continent suffered colder weather.

“Russia played the energy card and it did not win . . . but it would be too strong to say that Europe has won the energy battle already,” Birol told the Financial Times.

“I think Europe did a good job, [its strategy has] been a big success. But being overconfident for next winter is risky and it is time to continue and step up efforts for 2023.”

European natural gas prices have fallen as much as 85 per cent since peaking above €300 per megawatt hour in August, as efforts to procure alternative sources, conservation of existing supplies and warmer weather have left ample gas in storage as the end of winter nears.

That has led some industry figures to declare that Moscow has already lost the energy war it unleashed to try and weaken western support for Ukraine, as the first anniversary of Russia’s full-scale invasion approaches on February 24.

Birol said that while Europe had “moved mountains” to ensure it could replace Russian energy and had cut Moscow’s revenues with retaliatory oil sanctions, it could not afford to lose focus on conservation or developing renewable energy sources.

“Some of the achievements made on clean energy and reducing Russia’s revenues are good but it is not a permanent solution. We have had the help of mild weather. We gained some time, which is vital, but there is much more to do.”

Birol has warned that Russia could cut the remaining 20 per cent of prewar gas supplies it still sends to Europe through pipelines via Ukraine and Turkey, while competition for seaborne liquefied natural gas supplies is likely to increase as China’s economy continues to reopen.

That would make refilling European storage facilities over the summer months more challenging and test the continent’s ability to avoid shortages should next winter prove to be particularly cold.

He warned in November that a cold winter could leave Europe struggling to refill its gas storage sites to even 65 per cent of capacity by October 2023. But as of Monday Europe’s gas storage levels were already at 64 per cent of capacity, far higher than usual for the time of year.

Despite some European countries increasing their use of highly polluting coal for power generation — to conserve gas for heating and industry — EU emissions fell 2.5 per cent in 2022 because of lower gas usage and the warm start to winter, the IEA chief said.

Birol has been pushing for a longer-term transformation that not only adds renewable energy sources but also ensures a larger proportion of wind turbines or batteries is manufactured in Europe. He has met European Commission President Ursula von der Leyen twice in the past week, arguing the EU needs to ensure it never becomes too reliant on any one country for its energy supplies — or supply chains — again.

“We are entering a new industrial age of clean energy technology manufacturing,” he said. “The two powers [in clean energy manufacturing] are China and the US — relying on one single country is always a bad idea. So if we want diversification Europe is a good candidate.”

European gas prices were still two to three times higher than before Russia’s supply cuts, leaving European industry at a disadvantage. “The European economy is still on its feet — it didn’t see a major economic recession even if they definitely took a big hit,” Birol said.

“But prices are still seven times higher than in the US; electricity prices are three times higher than in China,” he added. “The lasting solution to energy security should be based on clean energy.”