Column: Europe forced to pay even higher prices to fill gas storage – Reuters.com

Tanks containing natural gas are seen at a storage facility of Erdgas Ostschweiz AG in Schlieren, Switzerland, March 5, 2022. Picture taken with a drone. REUTERS/Arnd Wiegmann/File Photo

LONDON, July 5 (Reuters) – Gas stocks in Europe are expected to reach 976 terawatt hours (TWh) by the end of the summer, up from 868 TWh at the same time last year, and slightly above average seasonal over 10 years.

The region continues to buy as much liquefied natural gas (LNG) as possible to compensate for lower imports from Russia and the possibility of a complete shutdown next winter, but it is driving prices up sharply.

European Union and United Kingdom (EU28) stocks are expected to be 44 TWh (5%) above the average of the past 10 years, based on past storage trajectories.

The likely range is 838 TWh to 1077 TWh, and has changed little in recent weeks as disruption to pipeline supplies from Russia has been offset by higher prices and more LNG arrivals.

Inventories have risen by a record 369 TWh since early April, compared to an increase of just 203 TWh in the same period last year and a ten-year seasonal average of 272 TWh.

As a result, inventories are 44 TWh (7% or 0.31 standard deviation) higher than the average for the time of year, after being 129 TWh (23% or 1.37 standard deviation) lower. at the end of January.

In recent weeks, the pace of inventory accumulation has slowed to 5 TWh per day, from over 7 TWh per day at the end of May.

(Mapbook: https://tmsnrt.rs/3RaxRVE)

Until early June, storage was filling up at an unsustainable rate, so some deceleration was expected by late June or early July.

Inventory accumulation normally slows at this time of year and the current rate is still slightly above the seasonal average for 2012-2021.

But the reduction in pipeline supplies from Russia accelerated the adjustment and put explosive upward pressure on prices by forcing European buyers to buy additional LNG shipments to make up the shortfall.

Futures prices for deliveries in northwestern Europe in January 2023, deep into next winter, soared to a record 173 euros per megawatt hour (MWh) from 95 euros in mid-June .

Soaring prices signal the need for conservation by businesses and households and the maximum shift from coal, biomass and hydro fuels by power generators to build up stocks even faster.

Futures contracts for deliveries in North West Europe in January 2023 are also trading at a record premium of 35 euros per MWh compared to deliveries on the same date in North East Asia.

European buyers are trying to divert the maximum volume of LNG to improve their own supply situation, which is squeezing public services in South and East Asia, worsening shortages at the other end of Eurasia and making raise prices for everyone.

Related columns:

– Europe’s summer gas prices ease as storage fills up early (Reuters, June 8) read more

– Gas prices in Europe falter as rate of storage construction not sustainable (Reuters, May 20) read more

– Europe is filling its gas storage at a record pace as Asian buyers pull back (Reuters, May 17) read more

– Europe rapidly starts filling gas storage (Reuters, May 4) read more

John Kemp is a market analyst at Reuters. Opinions expressed are his own.

Editing by David Evans

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