by This spring has nothing to do with the situation in Europe a year ago.
At the time, the Old Continent was about three months away from war in Ukraine, with Putin playing the energy card high in his war quiver, threatening to plunge Europe into darkness and cold before the winter.
Its comparative advantage lies in the fact that Russia supplied until 2021 40 to 50% of the quantities of natural gas imported by the European Union.
In order to avoid the worst, the EU has set itself the goal of filling gas storages faster than usual and limiting consumption in the 27 member states by 15% for the winter of 2022-23.
And all this with prices last summer reaching 340 euros per megawatt hour.
These two objectives have been achieved with more than that and today’s figures allow Europeans to look to the coming winter with more optimism.
general winter
Admittedly, Europe was lucky last winter. Thanks to mild temperatures, which have considerably dampened consumption, and China’s zero Covid policy, which has allowed Europe to import large quantities of liquefied natural gas that otherwise would not have been available, the capacity gas storage fell to 55% at the end of the season, well above the ten-year average of 33%.
Today, according to the Aggregated Gas Storage Inventory (AGSI+), the occupancy rate of natural gas storage facilities is approaching 62%, more than 20 percentage points higher than the average of the past five years.
To meet the 90% target, Europe needs around 35 billion cubic meters of natural gas in its storage by the end of October, well below the ten-year average of around 55 billion.
Last year, Europe bought around 70 billion scarves, which is one of the reasons prices have reached an all-time high. Even if the continent pushes its storage to 95% capacity, the amount of gas needed would be less than any other fill season in the previous decade.
Speaking to the Financial Times, Morgan Stanley analyst Martijn Rats claimed that Europe is now able to fill its natural gas reserves to 100% even if Russian supplies fall to zero. He pointed out that low prices would also slow maritime supplies of liquefied natural gas, with which Europe has sought to replace Russian flows. “At some point, the influx of LNG will have to slow down to avoid overfilling of reserves.”
Delays
Occupancy rates may be much higher than average, but warehouses are filling up in recent days at a slower rate than usual for this time of year. And this is the other side of the coin of the current situation: buyers are betting on further price cuts and expecting to reduce their costs.
As Bloomberg points out, the mainland’s benchmark futures have fallen significantly from record lows last summer, but that hasn’t been enough to boost markets. At the same time, consumption is slow to recover from the lows of the crisis. They are therefore waiting, hoping that the filling of the warehouses before next winter will be done at an even lower cost.
The “dangerous” excitement
Consumers appear confident, buoyed by the message from political leaders that the worst is over, according to Klaus Reinis, head of sales at Swiss energy trading company MET Holding AG.
“They hear everywhere on the news that Europe has done wonders and the crisis is over,” Reinis said in an interview in Amsterdam. He also pointed out that some expected prices to drop to as much as 10 euros per megawatt hour, a drop of more than 70% from current levels, but even if that happens, the price drop will not last. not long.
Reinis says heavy reliance on a global commodity like liquefied natural gas – which has replaced Russian pipeline fuel – exposes Europe to wider market movements and high price volatility .
The market is vulnerable
The market is still vulnerable. The rapid growth of natural gas consumption by industry, combined with the upsurge in demand from Asia, presents risks. Goldman Sachs Group Inc. analysts at Boston Group Consulting see a possibility of price recovery above 100 euros.
According to Norwegian energy giant Equinor ASA, Europe’s largest supplier, expectations of further price cuts mean that the replenishment of gas reserves in some European countries is likely to be made easier.
Good weather and bad news
The mild winter that helped Europe avoid the worst may not bode well for the months to come: the climate crisis that in previous months has paradoxically helped European countries avoid the energy strangulation, is now turning into a nightmarish threat, as rainfall is scarce in many parts of Europe. and low snow cover even in the Alps portends a summer of nightmarish water scarcity – and while Europe in 2022 has already experienced the worst drought in 500 years.
And that would probably also mean a hot, dry summer and an increase in energy demand for cooling purposes.
While unlikely to exceed traditional winter demand, this potential new summer energy demand could make it a bit more difficult for European countries to rush to fill their gas storage, even with stored gas. of the previous period for heating.
In this context, Russia continues its threats:
Gazprom, Russia’s state-owned gas supplier, recently warned that Europe had managed to weather the winter despite Russian gas supply cuts due to mild temperatures, but warned that “there is no has no guarantee that nature will ever give such a gift again”.
In a statement on Twitter, she said rebuilding stocks for next winter would not be easy, reiterating accusations of “politically motivated decisions to stop imports of Russian gas”.
