Europe’s natural gas inventories are at a record high for the time of year, but storage additions have slowed sharply, significantly reducing the risk storage sites will become full before the main winter heating season arrives.
Inventories across the European Union and the United Kingdom had climbed to 1,071 terawatt hours (TWh) by Sep. 6, according to Gas Infrastructure Europe (“Aggregated gas storage inventory”, GIE, Sep. 8).
Stocks were +201 TWh (+23% or +1.75 standard deviations) above the prior ten-year seasonal average but the surplus had narrowed from +284 TWh (+81% or +2.43 standard deviations) at the end of winter on March 31.
Record inventories in early September reflect the record volume of gas carried over after mild temperatures and high prices suppressed consumption during winter 2022/23.
Relatively little has been injected into storage during the current refill season, which has been one of the weakest in the last decade.
Chartbook: Europe gas inventories
Inventories had increased by just 437 TWh (2.75 TWh per day) between March 31 and Sep. 6, compared with a ten-year average seasonal fill of 518 TWh (+3.26 TWh).
The only smaller fills were 432 TWh in 2021 (when flows from Russia were depressed ahead of the invasion of Ukraine) and 426 TWh in 2020 (when space threatened to run out during the first wave of the pandemic).
Based on previous seasonal inventory movements in the last decade, inventories are on course to reach 1,166 TWh before the end of the summer.
Projected inventories would exceed estimated storage capacity of 1,148 TWh ensuring stock additions must still be curtailed.
But projected end-of-summer inventories have steadily fallen from 1,247 TWh when the refill season started on April 1.
The risk of storage space running out has been reduced correspondingly.
PEAKING EARLY
Some traders have begun to store extra gas in Ukraine to relax the storage constraint and boost stocks available for customers in the European Union during winter 2023/24.
Nonetheless, it will be critically important for the refill season to end earlier than usual to ensure storage space does not run out.
In the last 12 years, the median date on which storage peaked ahead of the main winter season was Oct. 26-27.
But the peak varies depending on storage conditions, prices and temperatures, and has arrived as early as Oct. 9 (2016) or as late as Nov. 13 (2022).
Given how full storage facilities are already, the peak will need to occur early this year, which could happen if there is an early and sustained period of cold weather.
But if temperatures remain close to the seasonal average or above, the market will have to force an early end to the refill by steep discounting gas for delivery in October.
Futures prices for gas delivered in October 2023 have already dropped to an average of just 33 euros per megawatt hour (MWh) so far in September down from 70 euros in January and a peak of 196 euros in August 2022.
Futures for October 2023 compared with April 2024 have traded at an average discount (contango) of almost 17 euros so far in September down from a premium (backwardation) of 3 euros in January and 54 euros in August 2022.
In recent weeks, the threat of strike action by workers in Australia’s offshore gas industry has received prominent attention and caused significant daily price volatility.
But any impact on global supplies would come too late to have an impact on Europe’s storage in the critical weeks between the second half of October and the first half of November.
Possible strike action in Australia is not expected to impact short-term price and storage dynamics. Futures prices for October 2023 have been broadly stable for six months as traders anticipate the current level will encourage just enough consumption and imports to fill storage without space running out.
Nor is it expected to have much impact on gas availability and prices in 2024. The futures strip for gas delivered throughout the course of 2024 has averaged 52 euros so far in September and has barely moved on a monthly average basis since March.
Related columns:
- Europe's record gas inventories cap prices (Aug. 8, 2023)
- Europe’s gas storage is filling too fast (July 6, 2023)
- Europe’s gas prices stabilise as storage additions slow (June 8, 2023)
- Europe only has space for a small gas refill in 2023 (April 14, 2023)
John Kemp is a Reuters market analyst. The views expressed are his own
