"Winter Panic": EU gas reserves at 13-year low
Europe is set to enter the winter with its lowest gas reserves in 13 years. With storage levels at only 63% in late August, experts warn of increased price volatility during the heating season.
Europe is expected to enter the cold months with its gas reserves at their lowest level in 13 years, a situation that is already causing "winter panic" among energy traders, experts warn. EU gas reserves were only 63% full in the last week of August, well below the 80% average recorded at the end of August in recent years, and among the lowest levels ever recorded at this time of year, according to a report by The Guardian.
At the current slow rate of gas injection into storage, the EU is expected to enter the winter heating season with gas stocks about a fifth lower than the five-year average and at their lowest level since 2013, according to gas analyst Greg Molnar. "Low inventory levels naturally increase the risk of increased price volatility in winter," he said. According to him, the situation could worsen in the event of "cold spells or prolonged periods of low wind," which would lead to an increase in gas consumption during the winter.
The UK could be particularly exposed to market volatility because it is one of Europe's largest gas consumers but holds one of the lowest domestic gas storage capacities. The UK typically relies on gas imports via pipelines from Europe or via tankers from the US and the Middle East. Chris O’Shea, CEO of Centrica, the owner of British Gas, said this week that the UK has "almost no gas in storage" ahead of the coming winter.
EU gas reserves have struggled to even approach the softened target of 80% occupancy by the start of winter since the US and Israel's war in Iran caused severe disruptions to oil and gas exports from the Gulf region. A cold end to last winter, along with higher-than-normal gas usage for electricity generation during the heatwaves that hit Europe in the summer, also contributed to the depletion of reserves.
In a typical year, storage facility operators fill them during the summer, when demand and prices are lower. Gas prices in the European market "remained relatively calm" during the summer, amid hopes that the Strait of Hormuz would reopen and that reserves could be filled ahead of winter. However, "no one expects this to happen anytime soon," according to Bjarne Schieldrop, chief commodities analyst at the Nordic banking group SEB. "As a result, the European natural gas market has fallen into a kind of winter panic in the last week," Schieldrop added.
Although Europe is not expected to suffer from a physical shortage of gas this coming winter, traders expect higher prices. The European gas price used as a benchmark has climbed in recent weeks to a three-year high, above 68 euros per megawatt-hour (MWh), more than double its price at the start of the year. Prices have risen sharply amid growing assessments that traders in the EU will have to compete with buyers in Asia for liquefied natural gas (LNG) cargoes as temperatures begin to drop. Without a resumption of gas exports from the Middle East to normal levels, the European gas price "will likely have to rise above 100 euros per megawatt-hour" to attract enough gas shipments to meet winter demand, according to Goldman Sachs analysts.
Concerns about gas supply are particularly acute in Western Europe, where inventory levels are significantly lower than in countries like Italy and Poland, which have managed to fill their reserves to more than 80%. In Germany, which holds the largest gas storage capacity in Europe, reserves are half full, according to Gas Infrastructure Europe. In Belgium and the Netherlands, which are directly connected to the British gas market via pipelines, inventory levels stand at 51% and 45%, respectively.
The UK's dependence on gas imports from the global market is expected to deepen as the decline in gas production from the British North Sea accelerates, while Norway's gas production will begin to fall from 2030. The government is considering plans to provide direct financial support to protect local gas infrastructure after official consultations revealed that households and businesses could face gas shortages within the next decade, despite the expansion of clean energy sources in the country. The plans may include financial support for gas storage facility owners and pipeline operators, with the aim of making their upgrade and maintenance economically viable for decades to come.
