Natural Gas Stocks in Europe Sound the Alarm: Winter May Be Difficult

Worrisome Decline in Gas Stocks in Europe

Following the 2022 energy crisis, the European Union's natural gas stocks have fallen to a historic low for this time of year. Particularly cold winter conditions have accelerated gas withdrawals from storage, causing Europe to enter winter with a lower than normal stock level. According to a recent Bloomberg report, supply concerns have driven natural gas prices to the strongest monthly increase in the last two years. The European reference natural gas price index, TTF, has risen to 42.60 Euros per megawatt hour, reaching its highest level in the past ten months.

Weather Conditions and Their Effects in the US

In fact, the rise in prices is largely influenced by the harsh winter storms in the US. As a result, supply disruptions in the US have increased Europe’s reliance on LNG (liquefied natural gas) supplies. At the same time, the decrease in gas deliveries via pipelines from Russia has highlighted the importance of maritime LNG supply.

Critical Situation in Storage

According to Gas Infrastructure Europe data, as of January 29, there are only 490 terawatt-hours of gas in EU storage. This translates to a shortfall equivalent to about 130 fully loaded LNG cargoes compared to the same period last year. The storage fill rate remains low at 43%, indicating the lowest seasonal level since 2022. In Germany, the storage volume entering winter is recorded to be 20% less than the peak level of last year.

Market Analyses and Future Expectations

Argus gas analyst Natasha Fielding evaluated this situation as being dependent on market conditions and changes in government policies. She pointed out that in recent years, the price curve for some futures gas contracts has inverted, stating that governments imposing storage obligations have increased summer prices. This situation has made it challenging for traders to create adequate stock.

Prices May Decrease in the Upcoming Period

BloombergNEF Global LNG Analyst Olympe Mattei d’Ornano forecasts a decrease in gas prices with the end of the winter season. The commencement of new gas supply capacities and the conclusion of the heating season may help balance the supply and prices. Fielding suggested that despite rainy winter periods, Northwest Europe will not experience levels low enough to cause electricity shortages by the end of March. Additionally, the information that hedge funds moved to a net long position in mid-January indicates that investors’ price expectations are developing positively.