Europe is on course to enter the cooler months with gas stores at their lowest level in 13 years, which has triggered “winter panic” among energy traders, experts have warned. The EU’s gas stocks were 63% full in the last week of August, well below the 80% average for late August over recent years and among the lowest levels ever recorded for this time of year. At the current sluggish rate of gas storage injections, the EU is likely to enter the winter heating season with gas stocks about a fifth below the five-year average, and at their lowest level since 2013, according to Greg Molnar, a gas analyst and professor.
The UK may be particularly exposed to market volatility, because it is one of the biggest gas consumers in Europe but has some of the lowest levels of domestic gas storage capacity. Typically, the UK relies on imports of gas via pipeline from Europe or tankers from the US and the Middle East. Chris O’Shea, chief executive of the British Gas owner Centrica, said this week the UK had “almost no gas in storage” for the coming winter.
The EU’s gas stores have struggled to rise towards a watered-down target of 80% full by the start of winter, since the US-Israel war on Iran triggered severe disruption to exports of oil and gas from the Gulf region. A cold end to last winter, and higher-than-usual gas power generation during Europe’s heatwaves this summer, have also contributed to the bloc’s depleted gas stores. In a typical year, owners of storage facilities fill them up during the summer when both demand and prices are lower.
Europe’s gas market prices have “stayed relatively calm” this summer in the hope that the strait of Hormuz would be reopened and winter stocks could be rebuilt. However, “no one expects it to happen any time soon”, according to Bjarne Schieldrop, chief analyst commodities at the Nordic banking group SEB. Although Europe is not expected to experience physical shortages of gas this winter, traders expect higher prices.
Benchmark gas price has climbed to three-year highs above €68 per megawatt-hour (MWh) in recent weeks, more than double the price at the start of the year. Prices have risen sharply on the growing expectation that market traders in the EU will need to compete with Asian buyers to secure cargoes of liquefied natural gas as temperatures begin to cool. Without a return of gas exports from the Middle East, Europe’s benchmark price “would likely need to move above €100/MWh” to attract enough shipments of gas to meet winter demand, according to analysts at Goldman Sachs.
Gas supply concerns are particularly acute in western Europe, where storage levels are well below those in countries such as Italy and Poland, which have managed to top up their gas stores to over 80% full. In Germany, which has Europe’s largest gas storage capacity, facilities are about half-full, according to Gas Infrastructure Europe. Storage levels in Belgium and the Netherlands, which connect directly to the UK gas market via gas pipelines, stand at 51% and 45%.
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