New reports highlight 2nd quarter impact of gas supply cuts
Russia’s weaponisation of its gas exports had a clear impact on pushing up gas prices in the second quarter of 2022, which then passed on to the whole EU energy sector, according to two new reports published today.
After the historic peaks in March, daily spot gas prices fell back and remained relatively stable in April and May, but started to rise again in June when Gazprom terminated supplies to certain EU countries, according to the last European Commission’s quarterly gas market report. As the marginal fuel used in the price setting of EU wholesale electricity prices, these high gas prices – and the volatility of these prices – caused significant increases across the EU, with France, Italy, Greece and Malta all seeing price levels more than double those from the second quarter of 2021, the quarterly electricity market report confirms.
Q2 2022 gas market report
The gas market report for the second quarter of 2022 quantifies how Russian gas imports fell measurably through all transit routes in the second quarter of 2022. Year-on-year comparisons showed a staggering 90% drop through the Belarus transit route, but also via Nord Stream (-12%), via Ukraine (-51%) and via TurkStream (-14%).
Including figures for July and August, the report notes that EU imports of Russian pipeline gas in January-August 2022 fell by 43 billion cubic metres (bcm), and total gas imports from Russia, including liquefied natural gas (LNG), were down by 39 bcm. At the same time, non-Russian LNG imports were up by 28 bcm and pipeline imports other than from Russia rose by 17 bcm.
In the face of these high prices, EU gas consumption in Q2 2022 fell steeply by 16% (-13.9 bcm) year-on-year, amounting to 71 bcm. Gas demand in electricity generation also fell, by 7% (-8.1 TWh). EU LNG imports were up by 49% in Q2 2022 year-on-year, amounting to 36 bcm, while overall EU gas imports rose by 3%. The EU spent an estimated €75 billion on gas imports in Q2 2022.
With prices again rising to record levels, the European Commission responded with more concrete details on the REPowerEU plan, first outlined in March, aimed at phasing out our dependence on Russian fossil fuels, easing the burden of high energy prices and speeding up the transition to renewable energy, and to become more energy efficient. Other measures included establishing an EU Energy Platform with a view to pooling demand, coordinating infrastructure use, negotiating with the international partners and preparing for joint gas and hydrogen purchases.
The Commission also tabled proposals, agreed by the co-legislators within weeks, to accelerate the filling of gas storage facilities ahead of the winter by setting a mandatory 80% filling target by 1 October. Indeed, gas storage injections were faster in Q2 2022 than in the same period of 2021, as on 30 June 2022 the average EU storage filling rate was 58%, up by 32 percentage points during Q2 2022. Retail gas prices for industrial customers showed a significant increase, up by an estimated 126% year-on-year in Q2 2022, for consumers with median annual consumption.
Q2 2022 electricity market report
The electricity market report for the second quarter of 2022 underlines the extent to which the reduced flows of pipeline gas and the uncertainty of the markets concerning European security of gas supply pushed up electricity prices. The European Power Benchmark averaged 191 €/MWh in Q2 2022 – 181% higher than Q2 2021.
At the same stage, the share of renewables managed to increase its share in the electricity mix in the 2nd quarter to 43%, outplaying fossil fuels (36%). Renewable generation improved its output by 2% (+5 TWh) year-on-year. This was the result of an increase of 24% in solar generation (+13 TWh), 10% of onshore wind (+7 TWh) and 11% of offshore wind (+1 TWh), despite hydro generation falling by 16% (-15 TWh) on yearly basis. Nuclear generation remained under pressure due to unplanned outages and scheduled maintenance in France, decreasing its output by 17% (-27 TWh) in Q2 2022. Reduced output levels of nuclear and hydro generation allowed fossil fuel generation to increase by 6% (+12 TWh) year-on-year in Q2 2022, despite high energy commodity prices.
With these high wholesale prices then impacting consumer bills – for households and for businesses –, EU countries governments were taking ever greater interest in trying to alleviate the impact on end users. Some of these concerns were addressed by new policy initiatives from the European Commission. Retail electricity prices for industrial customers also increased, estimated at 32% higher year-on-year in Q2 2022 for mid-sized industrial consumers.