Europe Scrambles to Secure Energy Supply as Greece Turns to Spot LNG Amid Low Renewable Output
As Europe faces a tightening energy market, Greece is feeling the immediate impact of low renewable energy production, leading to an urgent need for alternative power sources. In response, Greece has turned to the spot LNG market, with a critical cargo set to arrive on August 28. The 463,000 MWh (68,389 cubic meters) LNG cargo, imported by Metlen, underscores the growing reliance on natural gas as a backup energy source when renewables fall short.
The Renewables Gap: A Growing Concern
For the past week, Greece has experienced significantly low renewable power output, leading to a spike in gas consumption for electricity generation. A Greece-based trader highlighted the unexpected drop in renewable energy production, stating, "Renewable power was very low for the last week, so it has boosted up gas consumption from the power plants." This sudden surge in gas demand has exposed the vulnerabilities in Greece's energy infrastructure, where storage levels were not prepared to handle such a scenario.
With only about 200,000 to 250,000 MWh of LNG in storage, Greece was caught off guard. The trader mentioned that the region was short of 20,000 to 25,000 MWh of gas, which led to a significant increase in the balancing price for gas—double the actual market price. This imbalance is reflected in the pricing of LNG, particularly in the East Mediterranean (East Med) market.
LNG Pricing Pressures in the East Med
As Greece and other East Mediterranean countries scramble for LNG, prices in the region have surged. On August 23, the October DES East Med marker, which includes deliveries into Greece, Turkey, and Croatia, was priced at $12.427 per million British thermal units (MMBtu). This price represents a premium of 22.5 cents/MMBtu over DES Northwest Europe and 19.5 cents/MMBtu over DES Mediterranean. This premium reflects the heightened demand and tighter supply conditions in the East Med region.
Cancelled Cargoes and a Last-Minute Solution
The current situation is even more challenging considering that Greece had originally planned to import four LNG cargoes in August, according to DESFA's annual LNG unloading plan. However, three of these cargoes were canceled in later revisions, leaving the country with a significant energy shortfall. Metlen managed to import one partial LNG cargo of 56,130 cubic meters (380,000 MWh) on August 3. The August 28 spot cargo was reintroduced into the unloading plan after being initially dropped, illustrating the last-minute efforts to secure energy supplies.
A Growing Reliance on Gas
Greece’s increased power demand in recent months has been largely driven by extreme heatwaves, pushing the country to rely more on pipeline gas supplies rather than LNG imports. However, the recent renewable energy shortfall has demonstrated the critical role LNG plays in meeting the country’s energy needs when other sources fall short. This situation also highlights the broader energy challenges facing Europe, as countries navigate the transition to renewable energy while ensuring reliable power supplies.
A Call to Action for Europe
Greece’s scramble to secure LNG amid low renewable output is a microcosm of the broader energy challenges facing Europe. As the continent moves towards greater reliance on renewable energy, the need for flexible and reliable backup power sources like LNG becomes increasingly important. Europe must take proactive measures to ensure energy security, including bolstering LNG storage capacities, securing long-term supply contracts, and investing in infrastructure that can adapt to fluctuating energy demands. Failure to do so could leave the region vulnerable to supply shocks and price volatility, as evidenced by Greece’s recent experience.
This situation serves as a stark reminder that while renewable energy is the future, the present still demands reliable energy sources to bridge the gap.