Europe's Gas Demand Plummeted Over Winter

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)--Europe's gas consumption during the 2022-23 heating season dropped to its lowest levels in history as the region adjusted to Russia's throttling of gas supplies.

According to figures from the International Energy Agency (IEA), gas consumption in OECD Europe dropped by an estimated 16%, or 55 billion cubic meters (Bcm) year-on-year during the 2022-23 heating period, a six-month stretch from October to March. Steep cuts in supplies to Europe from Russia sparked a major energy crisis and record-breaking prices that heavily impacted many industrial and power sectors. The grim statistic comes just as the European Commission (EC) launched its first-ever international tender for joint purchasing of European Union (EU) gas supplies. It will leverage the EU's collective buying power through the recently-created AggregateEU mechanism.

The reduction in gas demand was attributed to a number of factors, including record high prices, milder winter temperatures, energy saving measures mandated by the European Commission and lower industrial use. "High gas prices continued to weigh on gas use in industry, while milder weather conditions--together with energy saving measures--depressed distribution network-related demand and gas burn in the power sector," stated the IEA, in its latest quarterly Gas Market Report. Distribution network-related demand fell by 16% (or 25 Bcm) year-on-year during the 2022/23 winter season, accounting for around 45% of the total reduction in OECD Europe's gas consumption. Heating degree days stood 7% below their 2021/22 levels, weighing on space heating requirements in the residential and commercial sectors. Notably, unseasonably mild temperatures in October and the first half of November delayed the start of the European heating season by almost a month.

The IEA noted: "Nevertheless, weather-related factors explain only 40% of the demand decline experienced in the residential and commercial sectors. Gas-saving measures enacted in public buildings (such as mandatory temperature controls), fuel-switching in rural households (including to biomass, fuel oil and waste), the installation of heat pumps, efficiency gains and behavioral changes all played a critical role in reducing distribution network-related demand. Rising affordability issues also contributed to lower gas use in households."

Gas burn for power generation declined by an estimated 12% (10 Bcm) year-on-year during the 2022/23 heating season. This was largely driven by lower electricity consumption, which fell by close to 7%--90 terawatt hours (TWh)--its largest drop in absolute terms for any winter season in IEA records. Milder weather, energy saving measures and lower electricity use in industry were the main drivers behind the sharp decline. Gas demand in industry fell by close to 20% (20 Bcm) year-on-year during the winter season, with high prices leading to continued fuel switching and reduced operating rates in the most gas-intensive industries. The steep drop in gas prices in Q1 2023 supported gas use in industry, which increased by an estimated 20% compared with Q4 2022.

According to the IEA: "OECD Europe's gas demand is forecast to decline by 5% in 2023. This is largely driven by lower gas burn in the power sector, down by close to 15% amid rapidly expanding renewables. Gas use in industry is expected to recover by close to 5% as lower gas prices enable demand recovery in the second half of the year. Considering the declines seen in Q1, demand in the residential and commercial sectors is expected to fall by 4% in 2023." Europe is currently busy filling its storage tanks for the coming winter, despite recent claims by Russia's state owned oil and gas company, Gazprom, that the region would find it "very difficult" to achieve. For additional information, see May 1, 2023, article - Russia Warns Europe: Getting Winter Gas will be 'Very Difficult'.

With the newly formed AggregateEU mechanism, Europe's first international tender for joint purchasing of gas involves 77 European companies, which have submitted requests for a total volume of 11.6 Bcm of gas demand. Liquefied natural gas (LNG) demand represents 2.7 Bcm, while 8.9 Bcm is requested for delivery via pipeline.

Launching the tender, European Commission Vice President Maroš Šefčovič said: "This is a historic milestone, because for the first time ever, we are leveraging the EU's collective economic weight to increase our energy security and tackle high gas prices. It will increase our energy security ahead of the next winter and help fill our gas storage. This is also an opportunity for international gas suppliers to expand their customers' base. This is a win-win exercise. Joint EU purchasing of gas has been introduced in response to the energy crisis triggered by the Russian invasion of Ukraine. It is part of the EU's efforts to phase out our supplies of Russian gas as soon as possible, under the REPowerEU Plan. It is open to all Member States and the EU Energy Community. Further tenders will follow the next demand aggregation exercises, tentatively scheduled in June, August, October and December 2023."

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