Following its invasion of Ukraine in February last year, Russia tried to pressure Western European countries to back off supporting Ukraine by weaponising its energy exports. So the European Union (EU) responded not by folding, but by reducing its consumption.
Russia used to supply 40-50% of the EU’s natural-gas imports – a reliance that meant Putin’s war wreaked havoc on energy markets. Amid fears of shortages, the EU set a target to reduce natural-gas consumption by 15% over the winter. Data released in late March showed that it met its target. Gas demand from the beginning of December 2022 to the end of February 2023 was 16% lower than the average for that period between 2019 and 2021. This was a product of good European planning, but also of a mild winter.
Source: The Economist
Demand for gas over the cold winter months in Europe is usually more than double the demand over summer. According to The Economist magazine, if temperatures fall by just 1℃, the average person in Europe will increase their daily energy consumption by around 4.6% of the daily average for the year. For much of the continent, this winter was warmer than in recent years, meaning that some reduction in gas consumption from the norm would have been expected, regardless of the Ukraine war.
But temperatures alone explain only around a third of the reduction in gas demand this winter. After accounting for the weather, Europeans still reduced their gas use by around 12%. In absolute terms, the Netherlands, Britain, and Germany cut back by the most: gas usage per person was 24% lower in the Netherlands, 18% lower in Britain, and 7% lower in Germany, compared with predicted levels.
Much of this was because of rising costs. In December, gas bills for European households were up by 60% compared with the year before, with Britain, Germany, and the Netherlands among the most affected. As a result, many households and businesses scaled back their energy use. Some industrial operations switched to using oil instead of gas, and energy-intensive products that would normally be produced in Europe were imported instead. Energy efficiency also played a small role.
Putin’s grip on Europe’s energy markets may look weaker than expected, but the continent needs long-term solutions to ease its tight energy supply.
Disclaimer: Clime Asset Management Pty Limited | AFSL 221146 | ABN 72 098 420 770. The information provided in this post is intended for general use only. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information contained therein. Please consider the relevant disclosure document/s before investing in one of our products. Investment in securities and other financial products involves risk. An investment in a financial product may have the potential for capital growth and income but may also carry the risk that the total return on the investment may be less than the amount contributed directly by the investor. Investors risk losing some or all of their capital invested. Past performance of financial products is not a reliable indicator of future performance or returns.