Winter is gone. But can we really say Europe’s energy crisis is over?

Europe’s winter has come to an end.

While this winter had the standard duration of three months, it felt like the lengthiest season on record: it had arrived in the midst of ominous warnings of crippling gas shortages, industrial paralysis, widespread blackouts, compulsory rationing and even civil unrest.

The wall-to-wall headlines appeared at times to foretell Europe’s energy doomsday. But instead, winter came and went, with no trace of the foretold day of reckoning.

Thanks to a combination of policy-making, market dynamics, weather phenomena and personal initiative, Europeans averted the worst-case scenario of the energy crisis, a remarkable feat in itself even if some of the scars from the make-or-break period are still healing.

The collective effort played out in full public view, with alternate moments of boldness and hysteria, and spilled over from the corridors of power to dinner-table conversations about electricity contracts, heat pumps and turtlenecks.

Liquefied natural gas (LNG), an unfamiliar commodity for ordinary Europeans, suddenly became a household name and a top political priority, while the ups and downs at the Title Transfer Facility (TTF), a virtual hub for gas trading, were accompanied by palpitations and cold sweats.

‘This year will still be a challenge’

“Entering into spring today, we can now say that we managed this winter season well. As we finished with a half-full storage, the first battle of this energy war with Russia is successfully behind us,” Kadri Simson, the European Commissioner for energy, told Euronews.

“We should be under no illusion that things are getting easy, however. This year will still be a challenge and the following year as well. Many uncertainties remain. Despite the overall good energy situation, we need to stay vigilant and work hard to prepare for the coming winter.”

But this success did not come off cheap: the International Energy Agency (IEA) estimates the European Union spent last year nearly €400 billion in gas purchases – almost three times the 2021 bill.

According to Bruegel, a Brussels-based think tank, the fiscal support rolled out by EU countries to cushion citizens and companies against the crisis is worth at least €657 billion.

Germany, a heavily gas-dependent country, earmarked €265 billion alone.

Although the energy crisis is frequently described as one of the most infamous consequences of Russia’s invasion of Ukraine, the crunch actually predates the brutal war.

The phenomenon dates all the way back to the onset of the COVID-19 pandemic, when countries across the world went into abrupt lockdowns and the global economy was effectively frozen. The standstill sent demand for energy on a downward spiral: wholesale prices collapsed, investment projects were paused and producers cut back their output out of fear of seeing their supplies go to waste.

The stunted markets were taken by surprise when, as soon as pandemic restrictions were lifted, consumers embarked on a shopping spree and travel mania to make up for the time spent in quarantine. Energy producers were unable to satisfy this sudden recovery, provoking a profound mismatch between supply and demand that pushed prices up.

By December 2021, gas prices were almost three times higher than they were a year earlier.

Russia’s gas roulette

In parallel, Russia, then the EU’s leading energy supplier, had begun to reduce its gas flows to the bloc, leaving underground storage at dramatically low levels. The trend corresponded with an ever-growing deployment of troops alongside the Ukrainian border.

The tight market conditions set the scene for Vladimir Putin’s strategy of leveraging energy as a weapon, says Ben McWilliams, an energy and climate consultant at the Bruegel think tank.

“Russia wasn’t filling the storage up and this sent off some alarm bells around Europe,” McWilliams told Euronews.

“Whether it was geopolitical or market-based, it’s impossible to say for sure. But my take would be it was geopolitical and that this was part of a broader strategy to dry up European gas reserves ahead of the invasion and then progressively play with the European system.”

The invasion sparked market chaos of unprecedented magnitude, sending policymakers into a panic to replace 140 billion cubic metres (bcm) of Russian gas – around 40% of total imports.

In a most unfortunate coincidence, France’s nuclear energy production slumped to a 30-year low due to maintenance operations while Europe’s hydroelectric output was badly hit by a severe drought.

In a matter of weeks, Europe’s ability to keep the lights on was under question.

The spectre of rationing became so palpable that Brussels was compelled to design an EU-wide plan to slash gas consumption by 15% before spring, marking the first time the bloc had agreed on a coordinated strategy to limit the use of something as ordinary as gas.

The power of savings

The febrile state of gas prices reached its peak in summer, when European governments, fearing a winter of discontent, opened their checkbooks wide to pay whatever was necessary to fill underground storages.

On 26 August, the TTF set an all-time high of €320 per megawatt-hour, eight times the price recorded on the day before the invasion was launched.

For those seated at the negotiating table, a realisation dawned: traditional methods had been exhausted and unconventional thinking was required to fend off a catastrophe.

The political impetus brought forth a raft of extraordinary energy measures: mandatory power savings during peak hours, a tax on windfall profits, default solidarity rules to prevent shortages, and joint procurement for gas supplies were all approved at record speed.

Even a highly divisive cap on gas prices was agreed upon after hard-fought talks between ambassadors and passionate pleas from leaders themselves.

Ironically, by the time the cap was settled at €180 per megawatt-hour, gas prices had entered a gradual decline, falling back to pre-war levels in early January, when unusually balmy weather swept across Europe and tamed consumer demand.

As temperatures progressively rose, prices continued to fall. On the first day of spring, prices at the TTF hovered below €39 per megawatt-hour.

While energy experts and analysts celebrate the ground-breaking nature of these EU policies and how they kept the single market intact, most believe the key to the effective crisis management lies in savings.

The crushing fear of an impossibly expensive bill prompted households and companies to take matters into their own hands and scale down their consumption well before policymakers told them to do so.

The EU’s gas demand fell last year by 13%, equivalent to 55 bcm and enough to power 40 million homes, the IEA has said, calling it the bloc’s “steepest drop in history.”

The agency credited the gas savings to the industry, which cut down production hours and boosted imports of finished goods, and to adjustments in buildings, such as lowering the thermostat, shortening hot showers and installing heat pumps.

Electricity generation was the only sector that saw a modest increase in gas use due to the need to make up for lower hydropower and nuclear output.

Elisabetta Cornago, a senior energy researcher at the Centre for European Reform (CER), described the savings as an “impressive response” but said some of the changes, particularly the industrial cutbacks, were temporary rather than “structural.”

“The behavioural response was driven by price level and the fear of how prices will impact your life. These fears and concerns led consumers to stay on the conservative side and try to limit the hours they had the heating on,” Cornago told Euronews.

“Fears of shortages and blackouts were substantial, they weren’t just a media stunt. The moment we realised French nuclear and hydropower were weak, the risk on the electricity front and the gas front became real.”

‘We’re still in a crisis’

With the calamity largely averted, many in Europe are now eager to turn the page on the energy crisis.

The topic has lost its prominence in Brussels circles, allowing items like migration and sustainable transport to come back to the very top of the agenda.

The calm, though, should not turn into complacency, experts warn, as the global mismatch between supply and demand is poised to continue squeezing prices.

Gas savings and LNG imports should work together to avoid a repeat of the 2022 drama, says Nikoline Bromander, a senior analyst at Rystad Energy, an independent research firm.

“Europe enters 2023 with a better-balanced market,” Bromander told Euronews. “For now, it appears that strong supply and storage fundamentals are countering cold weather forecasts.”

By the end of this year, Europe will be able to import an additional 78 bcm of LNG, paving the way for steady flows from the United States, Qatar, Nigeria and other producers.

But, Bromader noted, Europe will not be the sole client chasing after these LNG vessels.

“We estimate that 60% of the LNG that Europe will need in 2023 will be in the form of uncontracted volumes sourced from the spot-market,” Bromader said. “This will require Europe to compete with the global market, including Asia, and is likely to result in a tight market into 2023.”

Ben McWilliams struck a similarly prudent note, saying that although Russia’s power to twist the markets at will has been depleted, the energy crisis was “evolving and changing, but it’s certainly not over.”

“We’re now entering a new phase where gas prices are still structurally higher than they were two years ago. And I would say it’s very unlikely they will return to where they were two years ago, at least for the next couple of years,” said McWilliams.

“The system will still remain stressed. So we’re still in a crisis.”

The European Commission has already proposed to extend the 15% gas reduction plan until March 2024, reflecting how fundamental savings have become. The first joint purchases of gas are scheduled to take place in the summer with the aim of securing lower prices to refill underground storages.

“It is now important that member states hold the course and continue with actions that will achieve both of our dual goals: energy security and affordable prices,” Commissioner Simson said.

But the question of what constitutes “affordable prices” in wartime is still up for debate. 

Households are figuring out how to accommodate higher bills in their monthly expenses without making uncomfortable sacrifices. Political leaders and business associations are warning of an irreparable loss of competitiveness and a mass industrial exodus if energy bills refuse to go down.

So how long will Europe’s energy crisis last?

“As long as we’re dependent on gas supplies for the economy and until the energy transition is completed, this vulnerability to the price of gas or to what gas suppliers decide to do will remain. Because of that, the state of alert will be there,” Elisabetta Cornago said.

“We’re not out of the woods.”