Europe’s Unusually Low Gas Stocks Set to Underpin Prices

By Nina Chestney and Nora Buli

LONDON (Reuters) – European gas storage levels are lower than usual for the time of year and will need to be topped up significantly in the coming months, providing support to wholesale gas prices.

Storage sites are currently around 37% full compared to 60% full at the same time last year and 74% at the start of this year, based on the latest Gas Infrastructure Europe data.

Graphic: European gas storage levels – https://graphics.reuters.com/EUROPE-GAS/qzjvqgdojvx/chart.png

“Continental storage went from being at a record high at the beginning of last year to tracking 2018 levels when storage inventories were at the lowest level observed in recent years,” said gas analysts at Refinitiv.

They forecast storage levels to end the winter gas season at the end of March at 87 terrawatt hours (TWh), just 16% of total capacity and well below 307 TWh at the same time last year.

Gas storage is used as a buffer at times of high demand and disrupted supply.

If Europe goes into what is known as the summer gas season (April-October) with much less gas in storage than usual, storage sites will have to be topped up significantly over the summer months to ensure enough for the 2021/2022 winter season.

Graphic: TTF Summer-Winter 21 spread – https://graphics.reuters.com/EUROPE-GAS/dgkplzexbpb/chart.png

Europe started the 2020/2021 winter season with storage levels at five-year highs. Inventories last summer had been high due to reduced energy demand and as liquefied natural gas (LNG) supply flowed to Europe, said analysts at Timera Energy.

But LNG supply started falling in the first quarter of this year as cargoes went to Asia on high demand. A very cold snap in Europe also meant gas was withdrawn from storage, causing stores to dwindle.

“The substantial loss of European LNG supply earlier this winter amid cold European weather has already brought underground storage inventories below their end-March level in 2020,” said analysts at Energy Aspects.

Graphic: Rolling front-month contract TTF/NBP – https://graphics.reuters.com/EUROPE-GAS/qzjvqgljevx/chart.png

The cold winter, a delay to finishing the Nord Stream 2 pipeline from Russia to Europe and increasing storage withdrawal levels provide support to the price outlook into the summer season, Anders Opedal, CEO of Norwegian producer Equinor, said in the company’s results last month.

“I think we will see a volatile gas market [into the summer] but that the market is more balanced when we move a year or two ahead,” he added.

German oil and gas producer Wintershall Dea said last week that it is bullish on European gas prices as low stock levels at the end of winter meant there would be demand in the storage injection season in the summer.

(Reporting by Nina Chestney and Nora Buli; editing by Jason Neely)