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As the summer ends in the northern hemisphere on new highs for natural gas prices and volatility, and markets brace themselves for a winter of unprecedented uncertainty of supply due to Russia’s behaviour, security of energy supply has become a priority issue for consumers and policy makers across major consuming markets. A complete shutdown of Russian pipeline flows to the European Union cannot be ruled out.

The sharp decline in Russian gas flows to Europe and a tight power market drove European gas prices – and indirectly Asian spot LNG prices – to record highs in the third quarter of 2022. Meanwhile, prices in the United States reached their highest summer levels since 2008. This has come with extremely high price volatility, which further increases financial pressure on market participants and the risk of defaults, limiting the number of active market participants and resulting in further volatility.

The high price and tight supply environment has led to a decline in natural gas consumption across a majority of regions. In OECD Europe, gas demand declined by close to 10% y-o-y in the period January to August, falling by an estimated 15% in industry due to production curtailments. Major Asian gas markets experienced limited to negative growth – China and Japan were close to flat, and India and Korea contracted. South and Central America also recorded a decline in H1. North America was one of the few regions where demand increased, supported by demand from power generation and comparatively lower prices – albeit at decade highs. This forecast expects global gas demand to decline by 0.8% this year, followed by meagre 0.4% growth in 2023.

Against the backdrop of growing uncertainty and systemic supply risk for the forthcoming winter, in the early days of the summer the IEA emphasised the essential role of co‑ordinated action across Europe to prevent a major gas crunch. The agency put forward concrete measures to further enhance the region’s resilience against the risk of a full cut-off in gas supply from Russia. The European Union and its member states have taken a range of measures and actions over recent months to strengthen security of supply, including further diversifying supply sources, setting minimum underground storage inventory obligations, and co‑ordinating seasonal demand reductions.

The IEA’s seasonal resilience analysis shows that gas saving measures will be crucial in Europe to minimise the call on storage in the instance that Russia entirely cuts pipeline supply this winter, and thus to maintain supply flexibility for potential late cold spells. Interregional competition in LNG procurement may create further tension, as additional European needs would put more pressure on other buyers, especially in Asia, and conversely cold spells in Northeast Asia could limit Europe’s access to LNG.