Europe’s gas storage is filling more slowly after prices fell sharply in the first half of the year, but a further slowdown will be needed to prevent space running out before the start of winter 2023/24.
Stocks were already relatively high and the rate of accumulation ahead of winter is likely to keep nearby gas futures prices under pressure over the rest of this northern hemisphere summer.
Gas inventories across the European Union and the United Kingdom amounted to 889 terawatt-hours (TWh) on July 4, according to data from Gas Infrastructure Europe (“Aggregated gas storage inventory”, GIE, July 6).
Stocks were +246 TWh (+38% or +1.80 standard deviations) above the 10-year seasonal average although the surplus had narrowed from +280 TWh (+81% or +2.43 standard deviations) on March 31.
Stocks have accumulated more slowly than usual by a total of +255 TWh (+2.68 TWh per day), the slowest increase since 2021 and before that 2014, compared with a 10-year average increase of +291 TWh (+3.06 TWh per day).
Even so, because inventories were so high at the end of winter 2022/23, storage sites were already almost 79% full on July 4, compared with a prior 10-year average fill of just 60%.
Based on inventory movements in the last decade, inventories are on course to peak at 1,211 TWh before next winter’s drawdown begins, with a probable range from 1,053 TWh to 1,259 TWh.
As a result of slower injections, the projected storage has fallen from 1,246 TWh (with a range from 1,102 TWh to 1,413) at the start of the refill season on April 1.
But the technical capacity of the storage system is only 1,130 TWh so space is on track to run out well before the start of winter 2023/24 on October 1.
Chartbook: Europe's gas inventories and prices
Front-month futures prices have already fallen by 85% in real terms since August 2022 to encourage more consumption by electricity generators and industrial users as well as re-route liquefied natural gas (LNG) cargoes to Asia.
But after adjusting for inflation, prices are still in the 76th percentile for all months since 2010 so there is further scope to fall.
Nearby futures prices are under persistent pressure, pushing calendar spreads into a steep contango to boost consumption this summer while conserving it in the middle of winter 2023/24.
Futures for gas delivered in October 2023 are trading at a discount of almost 12 euros per megawatt-hour to prices for April 2024, having been at a premium of more than 5 euros at the start of the year and 38 euros a year ago.
Prices and spreads will continue to come under pressure until storage accumulation slows much further to avoid space becoming full before October.
Related columns:
- Europe’s gas prices stabilise as storage additions slow (June 8, 2023)
- Europe’s gas prices slide on swollen inventories (May 11, 2023)
- Europe only has space for a small gas refill in 2023 (April 14, 2023)
- Europe’s gas outlook transformed after mild winter (April 13, 2023)
John Kemp is a Reuters market analyst. The views expressed are his own
