Wide demand reduction only feasible solution to Europe energy crisis- Equinor

© Reuters. FILE PHOTO: Norwegian energy company Equinor's flag is seen at its headquarters in Stavanger, Norway, December 5, 2019. REUTERS/Ints Kalnins/File Photo

By Marwa Rashad

LONDON (Reuters) - Norway's Equinor believes that a wide-scale demand reduction would be the only feasible short-term solution to Europe's power crisis if Russia cuts off all gas supply, a senior executive at the energy group told Reuters.

Helge Haugane, Equinor's senior vice president for gas and power, also said that a European Union proposal to impose a price cap on imported gas and gas used to produce electricity would not solve the continent's underlying problem.

Russia's decision to halt gas flows via the major Nord Stream 1, which runs under the Baltic Sea to Germany, have sent another shock wave through economies in Europe still struggling to recover from the pandemic, sending the euro to a 20-year low and European gas prices soaring on Monday. [

The crisis is spurring EU governments to push through multi-billion euro packages to prevent utilities buckling under a liquidity squeeze and protect households from surging energy bills.

"In case the Russian volumes halt completely, the demand reduction needs to be even larger than what we so far have experienced, and no price cap or anything like that can solve the underlying problem," Haugane said.

In an interview on the sidelines of the Gastech international conference in Milan, Haugane said demand reduction "is very hard political work for those who can do something about that....but there is no other fix in the short term".

In the medium-term, he said that Europe would need to boost liquefied natural gas and regasification capacity while increasing the pace of renewable energy, which it has been slow to develop the past. 

The EU in July asked its 27 member states to reduce gas demand voluntarily by 15% this winter, with mandatory cuts possible in case needed. However, governments have been slow to reduce consumption.

Germany, the continent's largest economy, is in phase two of a three-stage emergency plan after a drastic reduction in gas flows from Russia, its main supplier. Stage three would introduce gas rationing - now a growing possibility if the Nord Stream 1 pipeline remains shut.

PRICE CAP

Brussels is drafting measures to protect citizens and industries from soaring electricity and gas prices, with the latter almost five times higher than year-ago levels.

EU ministers will discuss in a meeting on Friday a number of options including a price cap on imported gas, a price cap on gas used to produce electricity, or temporarily removing gas power plants from the current EU system of setting electricity prices.

Advocates of the price cap say that it would prevent some derivatives transactions to avoid margin calls

While this could be true, Haugane said that in Europe excluding Britain, the total of margin calls - extra funds deposited to cover payments tied to hedges - were probably more than 1.5 trillion euros ($1.5 trillion), squeezing market liquidity.

He also said such a cap would not help boost power storage and could instead keep demand high, depending on how the cap was distributed.

"I don't really see how that can happen, I know that with the current gas prices you look at every tool in the tool box, but the problem is how would you restrict something that is a global commodity," he said.

($1 = 1.0064 euros)