Europe spent over a trillion dollars on gas since Russia sparked supply squeeze
Europe has spent over a trillion dollars shoring up its gas supplies since Russia first began weaponising its pipelines in 2021, the year before its invasion of Ukraine, new research has found.
The EU27, UK, Norway, Ukraine and Turkey collectively spent $1.12tn in the past two and a half years, nearly as much as they spent in the preceding decade to 2020 ($1.35tn), according to calculations from Energy Flux.
This is despite consumption falling to a 28-year low in response to soaring prices and warmer than expected weather last winter.
In 2022, consumption dropped 14 per cent to 499bn cubic meters – with steep year-on-year declines seen in Finland (48 per cent), Sweden (30 per cent), Ukraine (29 per cent), Latvia (30 per cent) and Denmark (28 per cent).
Gas burn in Germany, Europe’s biggest gas market, fell by 15 per cent.
If gas prices remain elevated above pre-crisis levels, Energy Flux calculates the amount could increase a further $600bn the middle of the decade.
Russian state-backed suppliers have been squeezing pipeline supplies into Europe since 2021, and have since vastly reduced flows in response to Western sanctions.
These elevated prices are painful for Europe to absorb, with consumers across the continent burdened with historically high energy bills amid a sustained cost of living crisis.
This is worsened by the debts involved servicing gas held in storage, including restocking liquefied natural gas (LNG) at the height of gas prices last year.
LNG is natural gas that has been reduced to a liquid state, through a process of cooling before it is later converted back into a gas for use.
It is both very expensive and highly carbon intensive, more so than pipeline resources, with Europe competing with Asia for shipped supplies from the US and Qatar.
Earlier this week, British Gas owner Centrica signed a £6.2bn ($8bn) mega deal with US fossil fuel producer Delta Midstream, to meet five per cent of our gas demand needs.
Gas bills on the continent are likely to remain elevated over the next 2.5 years even if demand remains depressed.
While the market volatility of 2022 may have eased, the forward curve remains structurally inflated well above the historical average.
Market watchdog Ofgem has set the energy price cap at just over £2,000 per year for the next three months, around double pre-crisis levels – with Cornwall Insight expecting bills to remain at this rate over the winter.
Energy Flux’s calculations were based on the Energy Institute’s Statistical Review of World Energy.