Europe’s record gas stocks have surged due to a warm autumn and high prices, leading to potential savings for consumers. Gas prices for January 2024 have started to decline, indicating that the market may witness lower costs during the winter. The high inventory levels, combined with efforts to encourage consumption and stable geopolitical factors, make it unlikely that stocks will critically deplete this winter. As Europe enters the colder months, consumers can expect affordable heating and reduced energy bills.
Highlights
Record Gas Stocks: Europe has accumulated record gas inventories due to a warm autumn that delayed heating demand and high prices that discouraged industrial use and encouraged imports.
Price Pressure: Gas prices for January 2024 have started to slide as record inventory levels weigh on the market. Prices fell from more than 57 euros to below 47 euros in a span of 10 trading days.
Record Inventory Levels: On November 5, inventories across the European Union and the United Kingdom reached a record 1,146 terawatt-hours, which was 20% above the prior 10-year seasonal average. This surplus had increased from 18% on October 1.
Mild Autumn: Part of the reason for high inventories is a mild start to the autumn in Northwest Europe, with temperatures above the long-term average in September and October.
Late Filling: Gas storage sites continued to be filled later than usual due to the warm weather, with November 5 marking one of the latest fills on record.
Contango and Consumption: During the summer, calendar spreads weakened significantly, and the market moved into a contango to encourage more gas consumption and limit inventory build-up.
Strengthened Spreads: Spreads have strengthened as traders found ways to store extra gas in Ukraine and on LNG carriers, avoiding storage space shortages.
Price Impact: Conflict in the Middle East and the potential disruption of gas imports have kept European gas prices high.
Low Depletion Risk: Despite the need to conserve gas during winter, the significant gas in storage reduces the chance of stocks falling critically low regardless of the weather.
Winter Projections: Based on current storage levels and historical depletions, inventories are projected to fall to around 575 TWh by the end of winter 2023/24, leaving storage sites 50% full. Even with a very cold winter, it is unlikely that inventories will fall below 368 TWh, and in a mild winter, they could end as high as 795 TWh.
Conclusion
Europe’s abundant gas reserves and declining prices offer a promising outlook for consumers as they head into the winter season. The record gas inventories, coupled with mild autumn weather, are driving down costs and ensuring energy security. While uncertainties about winter weather persist, the continent is well-prepared to face the season with ample gas reserves and potential cost savings for households and industries alike.
