Europe braces for a potential gas crisis as historic heatwave boosts demand

On Thursday, the Nord Stream 1 pipeline — a crucial artery linking Russia’s gas to the bloc — is due to reopen after 10 days of routine maintenance work. But concern is building that Russia will keep the taps turned off in retaliation for sanctions the European Union has imposed since Moscow’s invasion of Ukraine in February.

Gazprom blamed the move on the West’s decision to withhold vital turbines because of sanctions.

German gas distributor Uniper confirmed Monday that it had received a letter from Gazprom claiming a force majeure on past and current shortfalls in gas deliveries. A force majeure is a contract clause which excuses a company for failing to meet its obligations. It is usually invoked in extreme circumstances such as natural disasters.

But a spokesperson for Uniper told CNN that it has “formally rejected” the claim. On Monday, the embattled company also drew down a €2 billion ($2.04 billion) credit facility with bank KfW because of the impact of Russian gas supply disruptions.

Awful timing

Soaring temperatures have pushed up demand for electricity to power air conditioning units. Enagas, Spain’s gas transmission system operator, said last week that demand for natural gas to produce electricity hit a new record of 800 gigawatt hours.

“This huge increase in the demand for natural gas for electricity production has been mainly due to the high temperatures recorded as a result of the heatwave,” Enagas said in a press statement last Thursday.

Some analysts were more optimistic, given Europe’s alternate sources of power and the fact that the heatwave is set to end by mid-week.

“Although power consumption in the EU will be a bit higher this week amid the heatwave due to high usage rates of aircon units, this will be offset by record supply of solar power generation,” Henning Gloystein, director of energy, climate and resources at Eurasia Group, told CNN Business.

Meanwhile, European countries are racing to fill up their gas storage facilities to avoid a potentially catastrophic energy shortage over the winter.

The “next few months will be critical” to shore up the bloc’s supplies, said Fatih Birol, executive director of the International Energy Agency, in a Monday press statement.

“If Russia decides to completely cut off gas supplies before Europe can get its storage levels up to 90%, the situation will be even more grave and challenging,” he added.

Gas storage levels across the European Union are currently around 64%, according to the Gas Infrastructure Europe.

The bloc is hurriedly securing gas supplies from other countries as it winds down imports of Russian gas. On Monday, the European Commission signed a memorandum of understanding with Azerbaijan to double the capacity of a key gas delivery route over the next few years.

Prices for Dutch natural gas, the European benchmark, were up 3% to €165 ($167) per megawatt hour on Monday from Friday, according to data from the Intercontinental Exchange.

— Julia Horowitz, Sharon Browne-Peter, Sharon Braithwaite and Chris Liakos contributed reporting.