Shell CEO warns of possible energy rationing this winter in Europe

Europe may be facing energy rationing this winter, Shell CEO Ben van Beurden said July 14 at Aurora Energy's spring forum in Oxford.

Russian gas supply curtailments have left much of Europe short of gas at a time when storage is usually refilled ahead of winter, fueling concerns of shortages in the coming winter. The EU has warned that a full cut-off in Russian gas flows to Europe cannot be ruled out.

"It would be unwise to ignore [Russian President Vladimir Putin's] threats. He is able and willing to weaponize energy," van Beurden said.

Europe was facing a tough winter with escalating prices, and "in a worst case scenario we may face rationing," he said.

The CEO called for incentives to invest in the energy transition to reduce dependency on imported fuels.

"Tax is a matter for governments, there are good ways and not so good ways [to manage rising energy bills]. We would prefer incentives and allowances for companies investing in the energy transition. More directly this could mean that we invest less in oil and gas as it's taxed more," he said.

State-controlled Gazprom in mid-June cut flows to Germany in the Nord Stream pipeline to just 40% of capacity, citing maintenance issues with turbines at the Portovaya compressor station. The pipeline is now also undergoing its annual maintenance shutdown, with flows cut to zero, and there are fears that the link may not return following the work.

Russian supply uncertainty has helped push European gas prices back toward the record highs seen in March in the immediate aftermath of Russia's invasion of Ukraine.

The benchmark Dutch TTF month-ahead price hit a record Eur212.15/MWh ($212.77/MWh) on March 8, according to the Platts price assessment from S&P Global Commodity Insights, and was last assessed at Eur182.70/MWh on July 13.

Early UK outlooks

Meanwhile UK gas and power system operator National Grid is to bring forward publication of its winter outlook to August, National Grid ESO Executive Director Fintan Slye said at the forum. The outlook is normally published in October.

The system operator was "keeping a close eye" on French nuclear outage risks, but the dominant risk to Europe was Russian gas supply, Slye said.

In electricity, National Grid had now contracted two coal-fired generators to remain online for security of supply reasons, Slye said.

In June EDF's West Burton A coal plant was signed up to remain online this winter. More recently two 660-MW units at Drax were signed up to remain online for six months to end-March 2023.

Slye noted existing "mutual support" agreements between national grid operators in the event of stress events, with Great Britain "potentially able to help out France" during peak demand periods due to time differences.

Record-high gas and power prices had revived interest in demand-side management, Slye said, with suppliers seen much more active in this area.

UK energy veteran Tony Cocker, Senior Independent Director at utility SSE, cautioned that "existing [emergency supply] protocols we relied on in the past need to be tested against this bigger and new scenario."

In addition to possible gas supply disruption or rationing, systems had to factor record low nuclear availability in France and reactor closures in Belgium and Germany, he said.

French Q4 2022 peak power prices spiked to Eur1,762.50/MWh July 8, EEX data showed, and are averaging Eur1,634.08/MWh July to date versus Eur589.32/MWh for Q4 22 in GB and Eur551.68/MWh in Germany.