Published by Global Banking and Finance Review
Posted on January 22, 2025
By Nora Buli and Kate Abnett
OSLO/BRUSSELS (Reuters) - Europe may have to buy at least 100 additional gas cargoes this summer, worth around $6 billion at today's prices, to replenish gas stocks after a plunge in storage levels this winter due to cold weather and a stoppage of Russian supply.
EU gas storage sites have emptied faster this year than in recent winters and are currently 59% full, according to the latest data from Gas Infrastructure Europe.
That is much lower than this time last year, when storage was still 75% full, or the 79% filling level at the same time in 2023, after the 2022 energy crisis triggered by Russia's invasion of Ukraine.
By the end of March, storage levels could drop to as low as 30-35% of capacity, said Rabobank energy strategist Florence Schmit. EU gas storage was 58% full at end-March last year.
If storage drops to 35% full - around 38 billion cubic meters (bcm) - European buyers will need to find an extra 12 bcm of gas on the global market this summer, compared with 2024, Energy Aspects analyst Erisa Pasko said.
That 12 bcm equates to around 120 liquefied natural gas (LNG) tankers worth $6 billion at today's prices, according to Reuters calculations.
"Europe will need to maintain high prices to continue attracting spot and divertible LNG supply away from Asia," Pasko said.
The storage concerns are helping to prop up already high European gas prices, which are trading at 14-month highs, also boosted by cold weather and the end of Russian gas transit via Ukraine.
Europe's higher demand for refilling storage is also reflected in high gas prices for the summer months, which are more expensive than contracts covering next winter.
This is unusual and last occurred in late 2021 and 2022, when Russia's Gazprom stopped filling its European storages, according to LSEG data.
Energy Aspects expects summer EU gas prices of 49.50 euros per megawatt hour (MWh), accounting for the loss of some Russian LNG due to U.S. sanctions.
Front-month TTF gas prices were trading at around 49 euros/MWh on Wednesday, up from 27.70 euros/MWh a year ago - but still far below their peak above 300 euros/MWh during the 2022 energy crisis.
Rabobank only sees summer prices at 34-37 euros/MWh, a 10% rise over 2024 levels but below where the market is currently trading.
Rabobank's Schmit said this was because relatively high prices would continue to dampen European consumers' gas demand, offsetting some of need for LNG to replace lost Russian pipeline supplies and to refill storage.
Europe's gas-intensive industrial production has been trending down since 2022, as firms struggle with weak consumer demand, cheap Chinese competition and high energy costs.
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Analysts and industry agree that European gas shortages are unlikely this year. Even Slovakia, the country hit hardest by the end of Ukraine gas transit, has said it has enough supply and storage to cover 2025.
"We're really not concerned about the fact that storage will be depleted and we cannot find supplies. But of course, this is not to say it's going to be cheap to refill them," said Aurora Energy Research analyst Arturo Regalado.
Germany's gas market trading hub is in talks with the economy ministry and regulator about the possibility of contractors receiving subsidies to refill gas storage sites.
The EU's need to buy more gas will reverberate around the world, potentially pulling LNG cargoes away from Asia.
"Globally, there is possibly still a shortage in terms of gas supplies," said Andreas Guth, head of industry association Eurogas, though he noted that shortages are not expected in Europe.
While two new U.S. LNG export terminals are expected to start up this year, the market will remain tight until 2027.
(Reporting by Kate Abnett in Brussels and Nora Buli in Oslo. Editing by Nina Chestney, Dmitry Zhdannikov and Mark Potter)
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