Europe must continue cutting its natural gas consumption this year and act quickly to secure additional supplies if it expects to make it through next winter, according to Brussels-based think tank Bruegel.

The European Union (EU) must cut demand this year by 13% from the previous five-year average through at least Oct. 1, Bruegel said in a report on Thursday. The target would be adequate if limited Russian imports continue and weather conditions are normal. It would also help the bloc fill natural gas storage inventories to 90% of capacity by that date as new regulations require. 

“Europe’s gas supply-demand balance will remain a tightrope walk for the next two years,” the report’s authors noted in stressing the continent’s energy crisis is not over. “There is very limited redundancy remaining in the system to compensate for any non-Russian supply risk that might occur. Policymakers must continue to take strong and decisive action.”

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Coordinated efforts across the bloc, along with abnormally warm weather and record LNG imports, have helped Europe through more than half of the winter with plenty of supplies to make it through the season. More of the same will be needed next winter to continue replacing gas cutoff by Russia since it invaded Ukraine nearly a year ago. 

Bruegel said the EU should extend a voluntary target to cut gas demand by 15% through at least October. That goal is currently set to expire March 31. 

Overall, EU members were able to cut gas demand by 12% last year compared to the 2019-2021 average, aided by weather and record high prices, which have fallen so far this year.

Industrial and household demand in Europe fell a combined 15%. The import of energy-intensive goods like ammonia helped to curb impacts on manufacturing output and employment, while households have also installed record numbers of heat pumps to curb gas use, Bruegel said. 

The think tank noted, however, that hardly any gas was saved in the power sector last year due to weak nuclear and hydroelectric output, which it said must rebound this year to help save gas. Germany’s Federal Network Agency, which regulates the largest gas market in Europe, also warned recently that the nation failed to curb enough demand in the second half of January. 

“Policy should support a continued structural shift away from gas,” the Bruegel authors said. “This involves enabling rapid deployment of renewables and the accompanying grid infrastructure, energy-efficiency measures, help for households that want to switch to cleaner heating, and collaboration with industry to accelerate adoption of new low-carbon production methods.”

More LNG Needed

Bruegel also stressed that as that shift occurs, more natural gas imports must be secured, largely liquefied natural gas. LNG imports hit record volumes on the continent last year, where buyers attracted cargoes by paying top dollar. 

Warm weather in the Northern Hemisphere also helped more volumes reach the continent as Asia needed less of its contracted volumes to meet demand. Competition is likely to increase in the years ahead.

“Plans for rapid deployment of regasification units will alleviate concerns over LNG import infrastructure capacity,” the report said. “However, the EU will continue to compete internationally for LNG cargoes, and will remain vulnerable to global dynamics. Strong economic growth in China, for example, could further tighten markets.”

Europe also relied heavily on Russian LNG imports last year, the continent’s third largest supplier behind Qatar and the United States, according to Kpler data. Bruegel cautioned that Russia could halt those supplies. 

While Bruegel said securing long-term contracts for LNG must align with the EU’s climate goals, it said there is room to do so. 

Currently, EU members hold long-term contracts with Russia for 100 billion cubic meters (3.5 Tcf) annually through 2030, according to the think tank. 

“Most of these are now redundant,” the report added. “As gas demand is set to decrease more quickly than expected in the EU, not all this capacity should be replaced with new long-term contracts, but limited volumes may be necessary. Any contracts must respect the EU’s climate goals and be concluded before 2049.”

That leaves some room for more European buyers to secure long-term deals with LNG project developers in search of 15-20 year agreements aiming to start-up operations in the coming years. The EU is targeting climate neutrality by 2050.

While traders, portfolio players and Asian offtakers accounted for most of the supply deals signed last year, particularly with U.S. LNG projects, more European buyers have signed agreements in recent months and are expected to continue doing so in the year ahead.