Europe facing record gas storage by the end of winter

A gas storage facility is seen at sunset in Manchester, Britain April 9, 2016. REUTERS / Russell Cheyne / File Photo

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OSLO, Dec. 14 (Reuters) – Gas storage levels in Europe could reach record highs by the end of the winter heating season due to an early cold snap and muted Russian flows, showed data from Gas Infrastructure Europe, leaving consumers and businesses with much higher prices for longer.

Gas prices have jumped this week near record highs seen in October, amid cold weather, concerns about a possible supply disruption in Russia and delays to the new Nord Stream 2 pipeline. Read more

The first month benchmark contract on the Dutch TTF hub climbed to 120 euros per megawatt hour (MWh) on Tuesday, close to the record intraday levels seen in early October.

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Prices in Europe had jumped 700% this year in October, with UK prices rising by around 500%.

Electricity price shock as well as oil price increases are also adding to broader inflationary pressures.

Typically, Europe would fall back on gas stocks built up over the summer months, but demand has been much higher this year as economies began to recover from the COVID-19 pandemic.

“We started the winter with the lowest stocks in a recent year, and pullbacks were quite large in November, which means the market remains worried,” Alex Froley, LNG analyst at HERE.

The European Commission is expected to come up with a system for EU countries to voluntarily purchase gas jointly to form strategic reserves later this week, but any action is likely to come too late to bolster current stock levels. Read more

Storage sites in European countries and Britain were only 75% full at the start of the winter heating season in October, and fell to around 63% in early December, according to data from Gas Infrastructure Europe.

Reuters Charts

Since the beginning of November, storage in Europe has fallen by 14.1 billion cubic meters (Gm3) against an average draw over 5 years of 11.1 Gm3 over the same period, said Julien Hoarau, director of Engie EnergyScan.

A cold snap in Europe has boosted demand as Russian gas giant Gazprom (GAZP.MM) awaits a permit to start shipping gas through the controversial Nord Stream 2 pipeline and reserve less capacity through existing transit routes at through Ukraine and Belarus. Read more

The low storage, the high demand and the lack of additional supply also pushed the TTF contract for the first quarter of 2022 above 100 euros / MWh. The summer 2022 contract is also up sharply, but at lower levels.

Reuters Charts

Russia’s pledge to start filling storage controlled by Gazprom in Europe to help get through the winter was also broken, with inventory levels rising 0.1 billion cubic meters from November 9 to 20. before the shift to net withdrawals started, Hoarau said.

Russian supply will remain relatively low until the start of Nord Stream 2, other analysts said, with some not expecting flows through the new pipeline to begin until September 2022, following a suspension of the German authorization process and growing tensions between Russia and the West over the Ukrainian conflict. Read more

“It is practically impossible to imagine that the Nord Stream 2 pipeline in the Baltic Sea will come into service in the current environment,” Commerzbank analysts said in a note on Tuesday.

Reuters Charts

“At current Russian export levels, storage stocks could finish below 15% by the end of March in average weather conditions, a record high,” said Massimo Di-Odoardo, vice president of research Europe Gas & LNG at Wood Mackenzie.

James Huckstepp Manager, EMEA Gas Analytics manager at S&P Global Platts said storage in Europe could be as low as 14% when the winter season ends on March 31, leaving little buffer for below normal temperatures or supply outages.

“We don’t expect storage levels to normalize until November-2022,” Huckstepp said.

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Reporting by Nora Buli, editing by Susanna Twidale, Veronica Brown and David Evans

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