Winter's End Signals Bulging Gas Stocks in Europe

Europe: Europe is geared up to see the winter season end with near-record gas storage levels, fuelled by the combination of industrial closures, high prices and an unusually mild winter.

Combined inventories in the European Union and the United Kingdom currently stand at 731 terawatt-hours (TWh). This represents a 55% increase, or 2.57 standard deviations, from the prior 10-year seasonal average of 260 TWh. Furthermore, it is an 11% increase, or 0.86 standard deviations, since the industry’s winter season began on October 1 with 95 TWh in inventory surplus.

Natural gas stocks in Northwest Europe are projected to reach the second highest on record this winter. The region is 70% of the way through the heating season and inventories are forecasted to drop to 604 TWh by the end of March. This would be just below the seasonal record of 732 TWh set in February 2020. Despite this impressive stock level, prices have been trading below 9 euros per megawatt-hour due to favorable weather conditions across Europe.

Storage sites across the EU and the UK are currently projected to end the winter at 53% full, with a probable range between 44%-60%. This is due in large part to relatively mild temperatures that have lowered heating demand and gas consumption.

Frankfurt in Germany experienced 1,268 heating degree days between July 1 and February 16 - the lowest since 2019/20. This marks a decrease of 7.5% or 0.96 standard deviations from its 10-year average.

Energy-intensive industries such as fertilizer, steel, chemical, ceramic, glass and cement manufacturers are being forced to close plants due to exceptionally high prices. This has resulted in a significant amount of gas being saved.

Price hikes and public relations campaigns to promote energy conservation could have had a positive influence on the actions of businesses and households. However, the exact extent of that impact is not clear. Additionally, higher rates continued to increase the flow of LNG into Europe, which undercut importers in China and South Asia.

Europe has seen a remarkable change in its outlook for the start of winter 2022/23. What was once feared to be a period of shortages has now been replaced with comfort, as a surplus is expected.

Gas prices for March 2023 have dropped significantly, with a current value of less than 50 euros per megawatt-hour. That’s nearly a decrease from the 177 euros at the start of winter and an astounding decrease from the record high 338 euros in August 2022.

Energy usage has taken a hit recently, but the market is beginning to pick up. Businesses and power generators are starting to purchase more energy-intensive products. This should help shrink the influx of liquefied natural gas (LNG), leading to lower inventories and leaving more space for gas reserves for the summer refill season in 2023.