LONDON — Europe’s gas inventories remain comfortable despite much colder-than-normal temperatures across the northern part of the region which have boosted heating demand significantly since the start of December.
Northwest Europe is now roughly 30% of the way through the typical winter heating season, which is starting to provide some visibility into stocks at the end of winter 2022/23.
The high level of inventories coupled with conservation has largely eliminated the risk stocks will fall critically low before winter ends, provided pipeline deliveries from Russia are not halted.
Ironically, while EU policymakers have continued to argue about a cap on gas prices, the market has resolved the risk of shortages this winter and is already making a start to secure supplies for winter 2023/24.
Inventories in the European Union and United Kingdom (EU28) totalled 987 terawatt-hours (TWh) on December 12, according to Gas Infrastructure Europe (“Aggregated gas storage inventory”, GIE, December 14).
Stocks were still +186 TWh (+23% or +1.74 standard deviations) above the ten-year seasonal average, despite cold weather driving higher heating demand since the start of the month.
The surplus had narrowed only slightly from its recent peak of +193 TWh (+23% or +1.83 standard deviations) on December 6.
Stocks have depleted by -63 TWh since the end of November which is only slightly faster than the ten-year average drawdown of -58 TWh.
Chartbook: Europe gas inventories
Exceptionally high prices coupled with conservation measures enacted following Russia’s invasion of Ukraine have significantly changed consumption patterns.
Far less gas is being consumed for any given temperature as consumers, industry and power generators are incentivised to use less energy or switch to other fuels.
As a result, inventories are on course to end the winter around 531 TWh, with a projected range of 377 TWh to 741 TWh based on patterns over the last decade.
This would be the second-highest post-winter carryout in the last decade and well above the ten-year seasonal average of 345 TWh.
As traders become more confident about stock levels, the end-winter calendar spread between March and April 2023 is trading in a backwardation of less than 1 euro per megawatt-hour.
The March-April spread has narrowed from almost 10 euros at the start of the fourth quarter, when traders still worried inventories might run dangerously short before winter ended.
Plentiful inventories at the end of winter 2022/23 will also make it much easier to refill storage ahead of winter 2023/24.
Futures prices for gas delivered in the middle of next year’s refill season in July 2023 have fallen to 131 euros down from 177 euros at the end of September and a record 304 euros in late August.
Temperatures are predicted to be at or above the seasonal average for the next two weeks across most of Europe, according to the European Centre for Medium-Range Weather Forecasts.
Despite the current cold snap, the mild start to the heating season, with more mild temperatures ahead, has combined with high prices and conservation to leave Europe with plentiful gas stocks.
– Europe on course to end winter with plenty of gas (Reuters, Nov. 28)
– Europe’s gas storage peaks after record refill season (Reuters, Nov. 18)
– Europe’s gas prices retreat as storage almost full (Reuters, Oct. 13)
– Mission accomplished? Europe fills gas storage ahead of schedule (Reuters, Oct. 4)
John Kemp is a Reuters market analyst. The views expressed are his own (Editing by Jane Merriman)