EU entering winter with lowest gas reserves on record, IEA boss warns

Berlin, Germany – Europe is entering winter with historically low gas reserves and cannot withstand further supply shocks, Fatih Birol, head of the International Energy Agency, has warned, as the US-Israel war on Iran disrupts global supply chains.

Speaking to Al Jazeera on the sidelines of an international conference in Berlin on Wednesday, Birol said all regions are being hit by energy disruptions in the Strait of Hormuz but that Europe is particularly vulnerable and will likely face rising costs of liquefied natural gas (LNG) in the coming months – even if peace returns to the Gulf today.

“The best day for a ceasefire would have been yesterday,” the energy economist, whose agency advises wealthy member nations and coordinates emergency responses, said.

“Normally before the winter, European countries have a lot of gas stocks, but the gas stocks we have while we are entering this winter are much lower than historical averages,” he said, adding that Europe’s gas is competing with that of Asian countries, which are even more dependent on the Middle East.

“I think if we have a harsh winter, we may see higher prices of natural gas in Europe,” Birol said, adding that the increasingly political nature of energy adds to the uncertainty. “Life will not be easy for Europe this year and also next year.”

European nations have long relied on imported gas to generate electricity for industries and warm homes in the freezing winter. Nearly a 10th of the continent’s LNG transited through the Hormuz Strait before the war. However, Iran’s attacks on vessels have plummeted imports.

As the winter chill settles, the European Union’s natural gas storage is only 72 percent full, down from the usual 90 percent. The shortfall is equivalent to the energy needed to power 10 to 12 million homes, analysts say.

EU energy ministers are now mulling over whether they should ask households and businesses to ration consumption, according to news reports.

Birol said he had long thought about the dangers of relying on the Strait of Hormuz. In fact, he said, his standard question to recruits seeking to join his agency was often: What would they do if the strait shuts down today?

The fallout has hardly come as a surprise. The flare-ups in the alternative Bab al-Mandeb strait, he added, have only worsened things.

“World leaders, how do they think?” Birol, who was born in Turkiye, said in his usual measured tone.

“I am really disappointed that governments didn’t take the necessary measures. Now, everybody is in a hurry, taking measures; the Middle East countries are building new pipelines, expanding the new pipelines that are bypassing the Strait of Hormuz … but in my view, these efforts should have been done much earlier.”

Europe’s historical over-reliance to blame

The EU, whose ageing refineries have processed less crude in recent years, also faces shortages of imported refined products such as the diesel that powers the bloc’s trucking, agricultural and industrial sectors.

Birol said Ukraine’s attacks on Russian refineries were also behind a looming diesel scarcity. About a third of Russian deliveries have stopped coming, he said.

When the Group of Seven (G7) nations agreed to push 400 million barrels of crude and diesel from their strategic reserves in March, it was Birol who coordinated how those emergency stocks reached global markets – the third time he has had to oversee emergency stock releases since Russia’s invasion of Ukraine in 2022.

For years, the energy economist said, his agency warned that the bloc was too tethered to Russia’s fuel, and that it had turned away too early from nuclear-generated power, which gave countries domestic leverage.

When Russia invaded Ukraine, his warnings manifested after Moscow cut gas supplies in retaliation for sanctions. The EU plans to permanently phase out Russian gas, but amid the Gulf crisis, members like France have again stepped up orders.

Price buffers stretched

Industry experts say emergency reserves that hit the market have limited use, as some estimate only a few months will be covered.

But Birol argued that his agency recorded real impact – a $20 drop in soaring oil prices immediately after the G7 countries agreed to release 100 billion barrels of crude oil and diesel earlier this month.

Prices are, however, on the rise again. Gas has surged by 140 percent since February, and Brent crude is trading well above $100.

Whatever happens now, the war will be felt for months, Birol pointed out, adding that it has irrevocably altered how energy will travel around the world.

It is also altering Europe’s politics, Birol noted. Russia has wielded gas as a weapon. And populist parties, from France to Germany, are capturing growing public anger to frame mainstream governments as incompetent.

“I have never ever seen the dark and long shadow of geopolitics so dominant in the energy sector,” Birol mused. “The world has gone through so many difficult periods, but this is the worst in terms of the geopolitics dominating the energy game. Energy is not currently considered a business but a political leverage. As an energy man, this worries me.”

The EU still has about 80 percent of its emergency stocks, and Birol hopes he will not have to oversee a fourth release. But the world’s supply can’t take more shocks, he said.

“I really hope that both of the straits will be unconditionally opened sometime soon; otherwise, in the energy world, we don’t have much more buffer zones to still keep the prices at a certain level (as) we have today,” he concluded.