EU gas consumption falls 18% following price shock caused due to Russian supply cuts

The large drop in energy consumption among households and businesses is a big success and helps to ease fears about an energy crisis.

The EU’s natural gas consumption fell by almost 18% in the eight-month period ending in March. This exceeded the target set by the EU and eased fears of an energy shortage caused by the massive reductions in Russian imports.

A milder winter was one of the factors that contributed to the large decline in gas consumption by European households. It also reflected energy saving efforts, the shutting down of certain energy-intensive industries and the switch to alternative fuels and power sources after the sharp increase in prices following Russia’s full blown invasion of Ukraine.

Eurostat, EU’s statistics agency, published figures on Wednesday showing that gas consumption in Europe fell by 17.7% between August and the end of March compared to the five-year average. The EU has exceeded its goal to reduce gas consumption by 15% over the same time period. This was part of the effort to combat the large drop in Russian supplies, which had caused fears about energy rationing.

Holger Schmieding is the chief economist of German investment bank Berenberg. Energy-intensive companies cut production, households conserved energy, and there was a shift to alternative fuel sources.

Data from the Federal Network Agency in Germany showed that households and small business had reduced their gas consumption by 17.2% compared to the five previous years, while the industry had decreased usage by 18.8%.

Henning Gloystein, an expert at the Eurasia Group consultancy, stated that the biggest driver was the switch to alternative fuels. He estimated this accounted for 60 percent of the decrease over the winter, and the remainder split between household conservatism and the relatively mild weather.

Gloystein stated that a large portion of demand reductions would be permanent as they were achieved by “improved efficiencies”, but “some of the behaviour changes made by companies might not last”. Gloystein estimated that EU gas consumption would continue to fall, but at a slower rate, and could drop by 3 – 5 percent in 2023, as more efficiency gains were made, and new renewable energy projects came on stream.

According to the EU-US Taskforce on Energy Security, the EU has decreased its proportion of gas imports from Russia from 37% in March 2022 to 16% at the end last year. The German government approved this week a bill that will ban new oil and natural gas heating systems after 2024.

The fall in EU gas demand was larger than expected, which has led to a recent price drop and increased storage. TTF European Gas Benchmark has dropped from EUR75 per megawatt-hour at the end December to EUR40/MWh. Prices peaked in August at a record EUR343/MWh , which is equivalent to over $500 per barrel of oil.

The sharp drop in prices has helped to temper the inflation rate in the eurozone, which fell from a high of 10.6% in October down to 6.9% in March.

Recent stabilisation of EU gas consumption has been achieved. The monthly decrease from the five-year average from November’s peak to December’s 12.3 percent was a drop from 25 percent in November. In March, it rose to 17.1%.

Gas Infrastructure Europe, a trade association, said that fears of energy shortages in winter of next year have diminished after EU gas storage capacity reached 55,7% at the beginning of the month. This is 20 percentage points higher than the average over the last five years.