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Europe's Energy Shift Shields It From 2022-Style Gas Price Spikes

Europe is structurally better prepared to handle energy shocks now than during the 2022 crisis, according to an ING Bank analysis. A massive expansion in solar and wind power, alongside reduced gas demand, has decreased vulnerability. Furthermore, a large pipeline of new global LNG export capacity is expected to ease supply constraints in coming years. While gas still sets electricity prices, mechanisms like joint EU purchasing should prevent the extreme price spikes seen two years ago.

Key Points: Europe Avoids 2022 Gas Price Peaks Thanks to Renewables, LNG

  • Renewables capacity up 57% since 2021
  • Gas demand down 16% from pre-crisis average
  • Major new LNG export capacity coming online
  • Joint EU purchasing to reduce price competition
  • Marginal pricing still links power costs to gas
2 min read

European gas prices unlikely to hit 2022 peaks in current crisis due to energy transition preparedness: Report

A new report finds Europe's expanded renewable capacity and LNG supply will prevent a repeat of the 2022 gas price crisis, despite ongoing market risks.

European gas prices unlikely to hit 2022 peaks in current crisis due to energy transition preparedness: Report
"We do not believe European gas prices will trade to the peaks seen in 2022 - ING Bank report"

New Delhi, March 24

European gas prices are unlikely to surge to the extreme levels seen in 2022, as the region is now better positioned to handle energy shocks compared to the early phase of the Russia-Ukraine conflict, according to a report by ING Bank.

The report stated, "We do not believe European gas prices will trade to the peaks seen in 2022; global gas markets are relatively better supplied, while a large pipeline of LNG export capacity is coming onto the market in the years ahead."

It noted that despite the relatively improved supply outlook, natural gas continues to play a critical role in electricity pricing in Europe. Under the marginal pricing system, the most expensive source of power, usually natural gas, sets the electricity price. As a result, even moderate increases in gas prices can still lead to a surge in electricity costs.

The report highlighted that Europe has significantly expanded its renewable energy capacity since the 2022 crisis. Installed solar and wind capacity surged by 57 per cent between 2021 and 2024, with estimates suggesting a further 15 per cent increase in 2025.

This growth has been supported by the European Commission's REPowerEU plan aimed at reducing dependence on Russian fossil fuels.

On the demand side, the report noted that Europe has reduced its reliance on natural gas. Gas demand remains 16 per cent below the levels seen during 2017-21, reflecting structural changes and demand destruction following the 2022 energy crisis.

The report also pointed to a significant expansion in global LNG supply capacity. Between 2021 and 2023, only around 25 bcm of new capacity was added, but a larger pipeline of LNG export capacity is now expected in the coming years, easing supply constraints.

It further noted that Europe has learned key lessons from the 2022 crisis. During that period, buyers rushed to secure gas supplies at any cost, leading to net injections of around 70 bcm in 2022 compared to an average of 55 bcm between 2017 and 2021 to meet storage targets.

The report added that joint gas purchasing mechanisms introduced in Europe are expected to reduce internal competition among buyers, which had previously driven prices higher.

Additionally, the report highlighted that in 2022, Europe faced multiple challenges simultaneously, including reduced Russian gas flows, lower nuclear output in France--down 30 per cent from the 20-year average--and weaker hydro power generation, forcing greater reliance on gas.

So the report suggested that while risks remain, Europe is now structurally better prepared to manage energy disruptions compared to 2022.

- ANI

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Reader Comments

R
Rohit P
Interesting analysis. The key takeaway for India should be the importance of diversifying energy sources and not being overly reliant on any single supplier or fuel type. Our own push for green hydrogen and offshore wind is crucial.
D
David E
The joint purchasing mechanism is a smart move. It shows how regional cooperation can prevent panic buying and price gouging. Something for other regions, including Asia, to consider for LNG procurement.
A
Aditya G
While the report is optimistic, I hope this doesn't lead to complacency. The marginal pricing system mentioned is a real problem—electricity bills can still shoot up even with moderate gas price hikes. Consumers need protection.
S
Shreya B
The 57% increase in solar and wind capacity in just 3 years is impressive! It proves that with political will (like the REPowerEU plan), a rapid transition is possible. India's targets are ambitious too; we need to ensure execution matches the scale.
V
Vikram M
A good lesson in crisis management. Europe was caught off-guard in 2022 but has adapted quickly. For India, the lesson is to keep building strategic reserves and invest in our own domestic gas production to shield ourselves from global volatility.

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