Crisis in the Strait of Hormuz and conflicts with Gazprom: how Europe is preparing for an unstable winter

The world media is covering the concerns of the Eurozone about the possible termination of gas supplies in the winter. In particular, Financial Times notes that the situation in the Middle East may lead to the closure of the Strait of Hormuz, through which about 20% of the world’s liquefied natural gas is transported. This could threaten Europe’s energy security.
For two winters in a row, Europe has been receiving gas with interruptions and is now preparing for new challenges. But the past winters were quite mild, so the Old World managed to finish the season with record reserves in gas storages. By switching to liquefied natural gas (LNG), the Eurozone has become more dependent on global markets. Although gas storages are full, even small disruptions can complicate the situation.
Acer EU Energy Supervisory Authority warns, that if gas consumption this winter significantly exceeds previous years, EU countries will have to increase their competitiveness in liquefied natural gas (LNG) markets to replenish supplies in 2025, potentially pushing up wholesale gas prices.
Edition of The Guardian informs on the recent 5% rise in blue fuel prices in Europe amid fears of a possible shutdown of supplies from Russia due to legal disputes between Russia’s Gazprom and Austrian oil and gas and petrochemical company OMV. As a result, gas prices in Europe have risen above 45 euros per megawatt-hour due to a possible shortage of gas supply in winter.
OMV won the case against Gazprom and is counting on compensation for irregular gas supplies to Germany, which may trigger a complete stoppage of exports of Russian blue fuel. If OMV does not make a payment of 213 million euros, deliveries could be stopped as early as next week. It is worth noting that Europe receives about 38 million cubic meters of Russian gas every day through Ukraine, half of which is destined for Austria.
In the UK, gas prices rose 3% to over 114 pence per therm (FYI: A therm is a unit of energy used to measure natural gas in the UK and the US. One therm is equal to 29.3 kWh or 100,000 British thermal units (BTU). However these levels are still lower than the record figures of August 2022. Austrian authorities assure that the country prepared for possible interruptions, having sufficient reserves and alternative sources.
Rystad Energy analysts expected lower gas prices in Europe due to sufficient reserves. They predict that excess fossil fuel production could lower energy prices as early as next year. A 17% rise in liquefied natural gas (LNG) imports in October provided winter supplies, although imports were 16% lower than last year due to reduced demand amid strong renewable energy production.
What does Europe risk due to the probable termination of the supply of blue fuel
The rise in gas prices in Europe, caused by the potential stoppage of supply by Gazprom after the court decision in favor of the Austrian company OMV, creates certain risks in the socio-political and economic spheres.
It is obvious that the increase in tariffs for heating and electricity can hit the wallets of citizens. In addition, high costs of energy resources for industry may raise the cost of production, which will trigger an increase in the prices of goods and services and may cause additional inflationary pressure. A sudden switch to other sources of gas – liquefied natural gas or supplies from Norway – could result in even greater costs and logistical challenges for EU countries.
Socially, rising energy prices can lower living standards, which can increase social tensions and lead to public protests or pressure on governments for subsidies or compensation, further straining state budgets.
At the political level, the situation threatens the energy security of Europe, which is trying to reduce its dependence on Russian gas. A sudden supply cut could trigger an energy crisis, forcing the EU to diversify supplies and invest in renewable energy. It may also push the EU to a stricter sanctions policy against Russia, which will affect the world economy, especially the energy market.
Rising gas prices and possible supply disruptions are putting pressure on the governments of European countries. Voters may demand quick decisions from the authorities to stabilize prices, making it difficult to coordinate common EU policies. National governments may be forced to make difficult decisions, balancing domestic economic needs and long-term commitments to the EU regarding energy independence.
45 euros per megawatt hour and 114 pence per therm – is it too little or too much?
The price of gas in Europe, which exceeded €45 per megawatt-hour, and the wholesale price in the UK, which reached 114 pence per therm, should be seen in the context of previous periods and the current situation in the energy markets. Compared to previous years, gas prices now remain relatively moderate, especially compared to August 2022, when they “broke through the ceiling” of 300 euros per megawatt-hour due to the Russian invasion. Then, in a situation of uncertainty and a significant decrease in the supply of Russian gas, an acute deficit was formed.
Compared to this peak, the current €45 looks moderate, but it is still above the usual seasonal level. In the cold season, prices usually rise due to increased demand for heating. The figure of €45/MWh is therefore average, but amid risks to supply stability, this could set the stage for further price increases, especially if supply disruptions occur or demand increases due to the cold winter.
The global context is also important for understanding the current energy market situation: on global markets, spot prices for liquefied natural gas can reach $20-30 per million British thermal units (equivalent to €70-100 per megawatt-hour) during periods of high demand or limited supply . Compared to this, current European prices remain lower, but their further dynamics will depend on the availability of LNG and competition with Asian countries for these resources.
In the UK, the wholesale gas price of 114p/therm is also above average, although it is still well below 2022, when prices reached more than 400p/therm. Overall, the current price level appears to be under control, however, in the event of supply disruptions or severe weather conditions, prices may rise sharply. So, compared to possible winter spikes, a value of €45 per megawatt-hour may seem moderate.
Eurozone actions to reduce energy dependence on Russia
Striving for energy security and reducing dependence on Russian supplies, the Eurozone is developing alternative energy sources and infrastructure. In particular, the focus is on increasing the import of liquefied natural gas from the USA, Qatar, Norway and Algeria. LNG is delivered by tankers, which allows flexible adaptation of supplies to the needs of European countries.
In addition, a significant role is played by Norway, which remains one of the most reliable suppliers of gas to the EU and has increased supplies in recent years, partially compensating for the loss of Russian gas. Another alternative is the Southern Gas Corridor, through which Azerbaijani gas is supplied to Europe in transit through Georgia, Turkey and Greece. This route helps diversify supplies and reduce dependence on Russian gas. Central European countries, in particular Hungary and Slovakia, seek to increase gas imports from Azerbaijan.
To reduce dependence on fossil fuels and stabilize the energy system in the future, Europe is investing in solar and wind energy. Germany, Denmark and the Netherlands are expanding their wind energy projects, including offshore wind farms on the coast.
France and Finland, among others, rely on nuclear power to provide baseload power.
To improve internal energy security, Europe also invests in such infrastructure projects as interconnectors and new gas pipelines connecting EU countries. This makes it possible to redistribute energy between regions to those where it is most needed. Such networks make it possible to import electricity from neighboring countries, for example, North Africa.
In addition, Europe has implemented energy efficiency programs aimed at reducing consumption by the population and industry. This means modernization of equipment, insulation of buildings, use of energy-efficient devices, etc.
Thanks to the diversification of energy sources, the development of renewable technologies and investments in modern infrastructure, Europe is gradually strengthening its energy independence and stability.
Tetyana Viktorova