Europe now has a huge stockpile of natural gas amid a mild winter

Europe now has a huge stockpile of natural gas amid a mild winter

  • Europe managed to avoid an energy crisis thanks to a mild winter.
  • But countries in the region built up reserves of natural gas last year over fears of a shortage.
  • Storage facilities are now at their highest level in years, but natural gas prices have fallen.

Europe was lucky – it managed to avoid an energy crisis, all thanks to a warm winter.

But he has another problem. Countries in the region have stockpiled so much natural gas at higher prices that it is now stuck with stocks of fuel whose market value has depreciated.

For example, reference Dutch natural gas futures have fallen nearly 28% this year so far to around 53 euros, or $57, per megawatt hour. Dutch natural gas futures are also 85% below August’s record high of €349 per megawatt hour.

The price spike had been prompted by fears that Europe would be caught in a brutal winter as Russia – a key supplier – continue to shut off channeled gas flows on the continent in retaliation for Western sanctions following the invasion of Ukraine.

Concerns had caused Europe to scramble to import liquefied natural gas from other countries and fill its storage facilities.

But the harsh winter it was fully prepared for didn’t come – Europe experienced its third-warmest January in 2023, with average temperatures 2.2 degrees Celsius, or 35.96 Fahrenheit above the average between 1991 and 2020, according to the EU Copernicus Service on Climate Change.

This meant that European countries did not need to increase heating as much. And as a result, its regional natural gas inventories – which are at about 65% capacity, on average – are at their highest levels in years, according to a Bloomberg analysis of data from European gas infrastructure released on Monday.

Although high storage levels are allaying fears of an energy crisis in Europe, especially as Russian gas deliveries to the EU fell to historic lows at the end of 2022, this also means that any sale from the stock in the spot market will now be at a loss. Any loss could affect the coffers of European states and could be borne by taxpayers.

“If buyers haven’t covered the volumes they stockpiled last summer, they will try to keep that gas in storage until prices rise potentially next winter or later in the future,” BloombergNEF analyst Stefan Ulrich said in the news outlet’s Monday report. . “It seems unlikely buyers will be able to recoup their full purchase costs unless the market tightens significantly,” he added.

THE International Energythere Agencyhowever, had an optimistic view of things when he said in a November 2022 report: “it’s never too early to prepare for next winter”.

THE European Central Bankor the ECB, also warned in its bulletin that current higher-than-expected natural gas inventories could be depleted faster than expected if the mercury drops sharply or there is a prolonged cold snap in the coming months. , leaving EU gas markets in a difficult situation. “more vulnerable position.”

It’s not just winter, the summer season could also be a problem. “High temperatures during the summer months would increase the demand for gas for power generation due to an increased need for air conditioning,” ECB economists warned.

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