Headline: Europe Draining Gas Reserves Rapidly Amidst Supply Constraints and Rising Demand
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The gas reservoirs in Europe are depleting at an unprecedented rate, dropping by about 19% since the end of the injection season in late September until mid-December, according to data from industry organization Gas Infrastructure Europe. This rapid decline contrasts with the previous two years, which saw single-digit reductions due to relatively mild temperatures and dampened industrial demand stemming from high prices.
This winter, Europe has had to rely more heavily on its underground storage to compensate for reduced imports of liquefied natural gas (LNG) and meet increased demand. "Europe has had to draw more on its gas storage this winter than in the last two years to offset reduced LNG imports and meet increased demand," said Natasa F ընդing, head of European gas pricing at data provider Argus Media.
Compounding the issue is increased competition from Asian buyers, lured by lower prices compared to recent years, which has led to slower LNG imports and a greater reliance on stored reserves. The last time Europe’s gas storages were depleted at this rate by mid-December was in 2021, when Russia began curtailing pipeline gas supplies ahead of its full-scale invasion of Ukraine. Currently, Europe’s gas stocks stand at 75%, slightly above the average for the past decade but below the 90% recorded at the same time last year.
Low Prices and Future Concerns
Gas prices in Europe have plunged to around 90% below the 300 euro per megawatt-hour peak witnessed during the summer 2022 energy crisis. However, depleting winter stocks could make it challenging and expensive to refill them next year. Traders are already dealing gas for summer 2024 delivery at higher prices than for winter 2023/24, indicating escalating costs for replenishing storage.
The European Union mandates that member states fill their storage to 90% of their capacity by early November. However, some countries have set lower targets. A significant portion of Europe’s gas supplies now comes in the form of LNG, which has become increasingly politicized in recent weeks. The incoming US President, Donald Trump, has warned the EU to commit to purchasing "major" amounts of American oil and gas or face tariffs. Meanwhile, Qatar has threatened to halt LNG supplies if European countries strictly enforce new legislation targeting companies that fail to meet established carbon emissions, human rights, and labor standards.
US and Qatar are the top and third-largest suppliers of LNG to Europe, respectively. Furthermore, periods of cold weather and "Dunkelflaute" days, when renewable energy sources are insufficient, have increased Europe’s demand for gas for electricity generation. According to Ann-Sophie Corbo, a research scholar at Columbia University’s Center on Global Energy Policy, industrial gas demand in nine northwest European countries has rebounded by 6% year-on-year between January and November 2023, after reaching a low in 2022.
Some countries are depleting their reserves faster than others. In the Netherlands, gas stocks have fallen by 33% since the start of the winter, while France has seen a 28% reduction. As the transit agreement expires at the end of 2024, Russian gas supply through Ukraine is expected to cease, accounting for around 5% of Europe’s gas imports. However, Eurogas’ general secretary, Andreas Gut, has stated that there are no significant concerns regarding a potential halt in Russian gas supplies transiting through Ukraine.
