Gas use by Europe’s largest consuming nations shows no sign of recovering in 2023

London — Europe’s gas consumption is down by between 10% and 15% compared with the decade before Russia’s invasion of Ukraine, as high prices enforce a sharp reduction in fuel use especially by energy-intensive manufacturers.

Use by the largest consuming countries shows no sign of recovering in 2023, despite the improved supply outlook and retreat in prices since the middle of 2022, indicating that some consumption losses may be permanent.

According to Eurostat estimates, consumption in the EU’s seven-largest gas consuming countries amounted to 6.1-million terajoules in the first seven months of the year.

Consumption had fallen from 6.8-million terajoules in the same period of 2022 and an average of 7-million terajoules in the 10 years from 2012 to 2021.

Use was down in every one of the first seven months of 2023 year compared with the pre-invasion decade showing consumption was down irrespective of temperatures.

Germany, Italy and the Netherlands all reported sharp reductions in gas consumption in June and July compared with the pre-invasion average. Space heating demand was essentially zero in this period so cuts reflected reduced use by electricity generators and industrial customers.

Europe gas consumption

By July 2023, front-month gas futures prices had fallen 88% from the peak in August 2022, after adjusting for inflation, as panic-buying for storage ended and a mild winter left the region with record stocks.

Since then, front-month futures prices have risen slightly, driven by concerns about industrial action disrupting liquefied natural gas (LNG) exports from Australia, though they are still down 86% from the peak in real terms.

Even so, prices are well above the long-term inflation-adjusted average, forcing power generators and industrial customers to use fuel and turn to alternatives or scale back their operations.

Real front-month prices were in the 60th percentile for all months since 2010 in July and have risen to the 83rd percentile so far in September.

Most energy-intensive industrial users require uninterrupted supplies, buy gas on contracts linked to longer-term averages, and hedge their costs forward to lock in profit margins.

Prices for gas to be delivered throughout 2024 are still double the inflation-adjusted average for the five years between 2017 and 2021.

Many users in steelmaking, smelting, cement, ceramics, glassmaking, fertilisers, petrochemicals and horticulture are struggling to pass on the rise in energy costs to their own customers.

In Germany, production by energy-intensive manufacturers was down by more than 17% in July compared with before the invasion.

Production in energy-intensive manufacturing has taken a bigger hit than during the first wave of the pandemic in 2020.

Energy-intensive manufacturing output is down by more than 10% compared with the same period in 2022 and is trending lower.

Reduced industrial consumption has cut the need for imports, rebuilt inventories to record levels for the time of year, and significantly improved the gas security outlook for winter 2023/24.

But the region has paid a high price in terms of reduced manufacturing activity, which could lead to permanent deindustrialisation unless gas prices are reduced significantly within the next couple of years.