European and global natural gas markets are not yet out of the danger created by Russia’s cuts to pipeline deliveries of gas. Conditions have been turbulent, prices have been extremely volatile, many households and gasintensive sectors have suffered – as have many gas-importing countries worldwide. Overall gas demand in the European Union (EU) is set to fall by around 10% in 2022, a drop of around 50 billion cubic metres (bcm). Some 10 bcm of this drop is due to curtailed production rather than efficiency gains or fuel switching.

But the situation could be worse: European Union and national policies, markets, consumer actions, non-Russian suppliers and mild weather have all played a part in compensating for the missing Russian deliveries. As of early December, Europe’s gas storage levels remain above their five-year average.

Several key factors could make 2023 an even sterner test:  Russian supplies may have further to fall. Although far below the levels seen prior to Russia’s invasion of Ukraine, total gas volumes delivered by pipeline from Russia to the European Union over the course of 2022 are set to be around 60 bcm. Russian pipeline deliveries are likely to be considerably lower in 2023 and could drop to zero, leaving an even larger hole in European and global gas supply.

 Supplies of liquified natural gas (LNG) will be tight. The European Union as a whole is set to add an estimated 40 bcm of LNG import capacity by the end of 2023. However, only around 20 bcm of additional LNG supply is expected to come onto the market over the course of the year. Meanwhile, Chinese import demand could well recover from the unusually low levels seen in 2022, intensifying competition for LNG cargoes. Europe’s ability to secure higher LNG imports in 2022 was enabled in large part by lower import demand from China.

 The unseasonably mild temperatures seen at the beginning of winter may not last. In our estimation, the mild weather in Europe in autumn 2022 has cut gas demand by more than 10 bcm. There is no guarantee that temperatures will be as forgiving for the remainder of the winter, or for 2023 as a whole.

If pipeline imports to the European Union from Russia drop to zero in 2023 and Chinese LNG demand rebounds to 2021 levels, then the European Union faces a serious supply-demand gap opening up in 2023. In this analysis, we provide a stress test for the EU gas balance in 2023 and find continued risks of renewed price volatility and turbulence in gas markets.