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- Europe is depleting its natural gas reserves at the fastest rate in six years.
- Kemp: since the start of the official winter season—October 1—gas in storage levels in the EU and the UK have declined by 83 terawatt-hours.
- Europe is facing a gas reckoning that was initially predicted for the winter of 2022-23.
Europe is depleting its natural gas reserves at the fastest rate in six years as still winter weather and low temperatures combine to challenge the continent’s transition away from hydrocarbons—and delay it.
Since the start of official winter season—October 1—gas in storage levels in the EU and the UK have declined by 83 terawatt-hours, energy analyst John Kemp reported last month. This is the fastest rate of withdrawals since 2016, he said, adding that the rate of withdrawals was over four times faster than the average for the last decade. Citing data from Gas Infrastructure Europe, Kemp said the level of gas in storage was still comfortable but palpably lower than it was in the past two winters.
Indeed, the Gas Infrastructure Europe data for daily injections and withdrawals paints a worrying picture. In Germany, for instance, gas in storage stood at a comfortable 90.93% as of November 30, but withdrawals were at 831.6 TWh, with injections at 44.38 TWh. The country’s consumption hit 888.83 TWh on that day.
The EU total gas in storage stands at 85.47% of capacity, with withdrawals at 4,364 TWh on November 30 at injection at 538 TWh. The EU’s consumption of gas on that day stood at 3,761 TWh—because solar panels are at the bottom of their output curve, and the wind is not blowing consistently enough to power the grid. The Dunkelflaute from early November is now over, by the way, and yet Germany is still using a lot of gas—and even more coal.
With this level of consumption, especially after the complacency of the last two winters, which were milder than usual, it is hardly a surprise that prices are prompting certain worries. The November average for the European gas benchmark—the Title Transfer Facility—was 16% higher than the average for October, reaching 47 euros per megawatt-hour. That’s up from 25 euro per MWh for February this year, which marked a three-year low, Euronews reported last week.
“A cold snap across the Atlantic has intensified market tightness, with sub-zero temperatures hitting northwest Europe and the US Northeast,” Quantum Commodity Intelligence said in a recent note. Such weather is pretty normal for the winter but, again, Europe grew complacent over the last two years, mistaking its luck for success in energy policies. Now, in addition to the cold winter and the lower wind power output, it is facing the additional danger of losing the last remains of Russian pipeline gas via Ukraine.
It appears that some in Brussels don’t see this as a problem. On the contrary, Europe’s leadership wants to get rid of Russian gas by 2027. The problem with that is that alternatives are more expensive, and there is more competition for them. It seems, however, that there may be a change in thinking after the outgoing energy commissioner suggested European traders could buy Russian gas at the border with Ukraine, according to an FT report.
The suggestion comes ahead of the December 31 expiry of the gas transit contract between Gazprom and Ukraine’s Naftogas, which the latter has signaled repeatedly that it would not renew. This means that Russian gas flows will end smack in the middle of winter—prices have nowhere to go but higher, especially as demand from Asia also rises, and so do spot market prices for American liquefied natural gas.
For November, Europe is expected to have imported some 9.16 million tons of LNG, of which 4.32 million tons are from the United States, according to data from Kpler cited by Reuters. The rest is coming from other sources including, notably, Russia. Prices, meanwhile, are rising. Indeed, the total price climb for the Asian spot market this year has reached a sizeable 76%. This has priced out the most sensitive importers, leaving more LNG for Europe—at a price.
Currently, this price—the spot market price for North Asia—is close to $15 per million British thermal units. However, it could rise above $20 per mmBtu, according to Goldman Sachs, if Europe’s gas supply tightens further—which is a virtual certainty as winter proper sets in.
“That’s the near-term dynamic, given this vulnerability of Europe, the lack of spare capacity, the loss of the residual Russian volumes currently going through Ukraine, and I should say, a colder than average start of the winter,” Samantha Dart, co-head of the bank’s commodity market research, told Reuters last week.
Europe is facing a gas reckoning that was initially predicted for the winter of 2022-23. As luck—and possibly climate change—would have it, the reckoning was delayed by two heating seasons. Yet now, as El Nino moves aside to let in La Nina, winter is back to its usual cold, and Europe is getting a stark reminder that wind turbines don’t generate electricity when the wind is not blowing, and solar panels don’t generate when they’re covered with snow. Much as transition-happy government officials might hate it, the choice is either fossil fuels or hypothermia.
By Irina Slav for Oilprice.com
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