Europe’s gas crisis is over, but not the painful adjustment

By John Kemp November 21, 2023  www.reuters.com

LONDON, Nov 21 (Reuters) - Europe’s gas inventories continued to accumulate much later than usual into the autumn as exceptionally mild weather delayed the onset of the winter heating season.

It was the culmination of an unusually long refill season which has left the region’s storage sites brimming with gas and eliminated fears about supply security.

Total inventories across the European Union and Britain hit a post-winter minimum on March 17 and continued to increase until Nov. 6.

Stocks began rising on the second-earliest date and continued building until the 11th latest date in the last 12 years, according to data from Gas Infrastructure Europe (GIE).

As a result, the refill season lasted for a total of 234 days in 2023 compared with an annual average of 207 days since 2012 (“Aggregated gas storage inventory”, GIE, November 21).

Only the refill season of 2022 lasted slightly longer, when the region was attempting to build to inventories in an emergency after Russia’s invasion of Ukraine.

But in contrast to 2022, when the refill started with stocks well below average, the 2023 refill started with stocks already at a record level for the end of winter.

The result has been an unusually gradual refill, with stocks increasing just 2.21 terawatt-hours (TWh) per day in 2023 compared with 3.30 TWh in 2022 and an average of 2.93 TWh since 2012.

MILD, WET AND WINDY

Exceptionally mild weather across Northwest Europe during October and the first part of November ensured the refill continued and delayed the onset of the winter drawdown.

Temperatures at Frankfurt in Germany have been above the long-term seasonal average on 42 of 51 days so far since the start of October.

Frankfurt is about 17% of the way through the normal heating season and so far heating demand has been almost 38% below average.

In an average heating year, Frankfurt will experience a total of around 2,161 heating degree days between July 1 and June 30.

But so far, Frankfurt has experienced just 227 heating degree days, compared with a long-term seasonal average of 364.

The mild, wet and windy autumn across Northwest Europe also boosted wind farm generation from the North Sea and neighboring areas further reducing gas consumption.

RECORD INVENTORIES

EU and UK gas inventories peaked at a record 1,146 TWh on Nov. 6 which was +190 TWh (+20% or +1.97 standard deviations) above the prior ten-year seasonal average.

Storage sites were a remarkable 99.6% full, which was more than 10 percentage points over the 89% average for the previous ten years.

The delayed end to the summer accumulation season also means an unusually late start to the winter depletion season.

Record inventories combined with a late onset of depletion and continued mild and windy weather have ensured the storage surplus continues to widen.

By Nov. 19, the surplus had widened to +204 TWh (+22% or +2.07 standard deviations) above the prior ten-year seasonal average.

STOCK PROJECTIONS

It is still very early in the winter heating season, so there is still considerable uncertainty about how much gas the region will consume and how much it will carry over to the summer 2024 refill.

But based on storage changes in the last ten years, inventories are projected to be 591 TWh at the end of winter 2023/24 which would leave storage 52% full.

Even a very cold winter would leave inventories of 401 TWh (35% full) while a very mild winter could leave as much as 804 TWh (70%).

EU policymakers will continue to stress potential risks to gas supplies and emphasize the need for continued conservation.

But the crisis of 2022/23 has passed and inventories are likely to be more than enough to cope with even the very coldest winter in 2023/24.

The region’s challenge is how to cope with relatively high gas prices in the medium term if relatively inexpensive pipeline gas from Russia is permanently swapped for more expensive liquefied natural gas (LNG).

Greater reliance on LNG rather than fixed pipelines also means Europe’s gas prices will increasingly be determined by weather, business cycles and policies outside its borders, especially in Asia.

Europe will always be able to outbid rivals to secure sufficient volumes LNG on account of its higher income and wealth but the prices it pays will increasingly be determined elsewhere.

John Kemp is a Reuters market analyst. The views expressed are his own. Follow his commentary on X, formerly Twitter: https://twitter.com/JKempEnergy