BAKU, Azerbaijan, Jan.23. Despite a strong decline in 2022, additional gas demand reduction will be needed in Europe in 2023 in preparation for winter 2023/2024 and even potentially for winter 2024/2025, Trend reports with reference to the Oxford Institute for Energy Studies (OIES).
“The industrial sector has been the main source of gas demand flexibility in 2022, and it is expected to continue playing this role through voluntary reduction and demand response. For most manufacturing production (the chemical sector being a clear exception), strong output in 2022 suggested that record prices have not had as dramatic an impact as one could have expected (yet?) with significant switching to alternative energy sources and improved operational efficiency. However, after over a year of high prices, most of the ‘low hanging fruit’ is likely to have been harvested by now, so it is unclear how easy it might be to further reduce gas use without reducing production,” reads the latest OIES report.
In addition, the Oxford Institute analysts say it seems likely that most of the decline has come from reduction measures (as opposed to major demand destruction), which means that when gas/electricity prices go down, be it as a result of the market rebalancing or as a result of support measures from governments, a significant proportion of gas demand in the industrial sector (which seems to have gone down by about 15-20 per cent in 2022) could come back within a few weeks, as seen in October when gas prices reached their lowest levels in months and fertilizer producers restarted production in Europe.
“Secondly, warm weather at the beginning of the year and similarly at the beginning of the winter season 2022/23, limited the need for gas use in space heating in 2022. Mild temperatures and continued high gas prices seem to have also facilitated an important demand response from small residential and commercial consumers, a usually rather inelastic sector in the short term, in the form of lower production and fuel switching in small businesses and lower energy use in the buildings sector. Continued participation of consumers in demand saving measures in buildings is going to be essential throughout 2023. There are two main uncertainties: first, government intervention in subsidizing energy bills and campaigns to save energy will need to send the right signals in order to keep consumption low; and second, temperatures: cold weather may erode consumers’ willingness to reduce their energy for heating (and possibly increase gas demand by up to 15-20 bcma),” reads the report.
Eurostat data shows that the EU consumption of natural gas has dropped by 20.1 percent in the period August-November 2022, compared with the average gas consumption for the same months (August-November) between 2017 and 2021. The Council Regulation (EU) 2022/1369 on coordinated demand-reduction measures for gas, part of the REPowerEU plan to end EU dependence on Russian fossil fuels, set a reduction target of 15 percent for the period August 2022-March 2023 as compared to the average of the same period of the five previous consecutive years.
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