Another Russian energy war is a real threat to Europe, IEA warns

• A colder winter and lower gas exports from Moscow would bring energy uncertainty back to Europe.
• That's according to the International Energy Agency, which downgraded its outlook on gas demand.

The European commitment to stave off a future energy crisis may not be enough, as full natural gas inventories are insufficient against the threat of curbed Russian exports, the International Energy Agency said.

According to a Monday report, ruptured trade with Moscow and a colder winter may leave the region on thin ice, despite gas reserves heading for 95% of working capacity.

"Our simulations show that a cold winter, together with a full halt of Russian piped gas supplies to the European Union starting from 1 October 2023, could easily renew price volatility and market tensions," IEA wrote.

Russian gas accounts for about 10% of gas imports to the European Union, but the country was once the region's main supplier.

When the Ukraine War launched in early 2022, Western sanctions and price caps on energy commodities caused Russia to reconfigure its gas trade, steeply curbing shipments to the continent, a reduction equal to 15% of all global LNG trade.

At the time, this prompted fears of a winter crisis, but an unusually warm season helped ease gas demand in Europe last winter. While lucky then, the next winter may prove to be colder — this could be especially true as El Niño ramps up, with the weather anomaly potentially bringing colder winters to Northern Europe.

Still, thanks to last year's mild winter, the EU was left with high gas storage levels, standing 60% above their five-year average. If injections continue at their current rate, the region's stockpile is set to near 100% by mid-September, IEA said.

"If we assume a mild winter and LNG flows remaining close to last year's levels, storage sites would end the heating season with inventory levels above 50% of capacity even without Russian piped gas," the report said.

But if a cold winter sets in, IEA expects EU demand for gas to jump by 30 billion cubic meters compared to the previous heating season. This would be worsened if Russian piped gas supplies hypothetically stopped in October, causing a total shortfall of 10 billion cubic meters to set in.

The uncertainty behind these risks means wider volatility for Europe's gas storage. Though global LNG supply is expected to rise 15% year-over-year, helping maintain some reserve levels at 34% until March, lower LNG availability could pressure inventory levels to under 20%.

The IEA also lowered its medium and long-term outlook on the commodity's demand, as it's been damaged by Russia's war in Ukraine.