Europe's gas inventories are at a record high for the time of year - the lingering effect of a record carryout from last winter, despite a relatively slow refill since the start of April driven by a fall in prices.
Stocks in the European Union and the United Kingdom had climbed to 998 terawatt-hours (TWh) by Aug. 6, according to Gas Infrastructure Europe ("Aggregated gas storage inventory", GIE, Aug. 8).
Inventories were +234 TWh (+31% or +1.89 standard deviations) above the prior 10-year seasonal average and the surplus has narrowed only modestly from +282 TWh (+81% or +2.43 standard deviations) on March 31.
Stocks have risen by just +364 TWh since the end of the traditional winter season on March 31, the smallest increase since 2021 and before that 2014.
But because inventories finished the winter of 2022/23 at a record high even a smaller-than-average accumulation has left them at record levels.
As a result, storage facilities are already more than 87% full compared with a prior 10-year average of just 71% on the same date.
Based on seasonal fill rates over the last decade, stocks are on course to peak at 1,199 TWh before winter with a probable range of 1,102 TWh to 1,272 TWh.
Since maximum storage capacity is only around 1,142 TWh many of these trajectories are physically impossible and inventory additions will have to slow even further.
Chartbook: Europe gas inventories and prices
Futures prices for gas delivered in the summer of 2023 have already fallen sharply to encourage more consumption by industrial users and power generators.
Lower prices in Europe will also ensure more liquefied natural gas (LNG) is directed to price sensitive customers in Asia and Latin America.
After adjusting for inflation, front-month futures prices averaged less than 30 euros per megawatt-hour in July down from an average of 66 euros in January 2023 and a record 247 euros in August 2022.
Prices for gas delivered in October 2023 are also trading at a discount of 9 euros to November 2023 and almost 14 euros to April 2024 to encourage more use in the short term.
Since 2011, gas storage has continued filling until around Oct. 26 on average before starting to draw down for the winter.
But the sharp discount for prices in October should encourage an earlier peak and earlier start to depletion than normal to prevent storage space running out.
Since the end of June, traders have become less concerned about storage running out, with front-month prices steadying and pre-winter discounts actually narrowing slightly.
Prices for deliveries next year have also steadied with the calendar average for 2024 trading around 50 euros since March after slumping by two-thirds since August 2022.
Because of the limitations on storage capacity, inventories accumulated during the summer of 2023 are not a perfect substitute for imports during winter 2023/24.
Inventories will deplete and supplies tighten quickly if the winter is much colder than normal, leaving the region vulnerable to price spikes.
Even without price spikes, prices remain well above the pre-invasion average and are expected to remain high throughout 2024, discouraging industrial use and restart of major gas-intensive plants.
For the time being, however, inventories remain plentiful and the focus is on limiting further accumulation before the end of October.
Related columns:
- High prices keep lid on Europe's industrial gas use (July 11, 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
