Gas volatility threatens phaseout of coal

This is one of the findings from McKinsey & Company, which found that failure to immediately reduce gas demand could put Europe at ‘substantial risk’ from a rebound in Asian demand or reductions in Russian imports.

As a consequence of the war in Ukraine, McKinsey research finds that a total cessation of Russian imports could reduce Europe’s supply by 25bcm and renewed Asian LNG demand could absorb 35bcm of supply, while a colder winter in 2023 could boost demand by 15bcm.

The McKinsey analysis titled ‘A balancing act: Securing European gas and power markets’ shows 57 per cent of EU manufacturers not being able to further reduce gas consumption while maintaining output over the next two years, indicating that further gas rationing measures could impact the EU economy.

Furthermore, even if Europe meets its RePowerEU targets to reduce gas consumption and improves energy efficiency across buildings and industry, volatile gas prices and potential supply disruptions still pose a risk to many economic sectors. Consequently, Europe may need to delay the phaseout of coal, extend the lifetime of nuclear plants and accelerate the expansion of renewable energy sources (RES) to reduce reliance on gas as a baseload. Sustained supply-chain disruptions, slow permitting processes, and a lack of skilled workers for renewable installation could also impede the required pace of RES development in Europe.