EU Natural Gas

In March 2022 I started giving much more attention than ever before to EU natural gas sources, inventories, distribution networks, and consumption. In May 2022 I was invited to listen-in and ask occasional questions while European energy experts tried to decide what could be done regarding their dependence on Russia’s natural gas. Looking ahead six to nine months, in July 2002 I wrote here:

President Putin is depending on decadent demand. He is depending on European consumers and bourgeois politicians to succumb to high prices and chilly room temperatures. Putin has restored General Winter to a prominent place in Kremlin councils… In recent years natural gas has generally provided between one-fifth to one-quarter of the European Union’s total energy mix. There is considerable variation nation to nation. Natural gas fuels roughly one-fifth of EU electrical generation. This ranges from over 40 percent in Italy and Netherlands to less than 15 percent in Germany or barely more than 5 percent in Denmark… Maybe General Winter will descend on Amsterdam to Warsaw with the coldest temperatures in two centuries. He is confident that contemporary European consumers — and voters — are effete, weak, self-indulgent, and can eventually be distracted from any concern for Ukraine… much less what might come after Ukraine. Yesterday the host of the EU energy consultations said, “… everybody understands that this sacrifice is necessary. We have to, and we will, share the pain” (more).

By late summer 2022 a more resilient natural gas flow-map was beginning to emerge, but there was still plenty of cause for concern. In mid-September I outlined, “Efforts by the EU and its members states to reduce energy consumption began in the weeks following Russia’s invasion of Ukraine. As the summer ended, these efforts have escalated (more and more). Much will depend on winter weather.”

Fortunately, General Winter decided to extend his stay on the Riviera. On New Year’s Day 2023, this blog reported:

Europe’s second week of winter begins with Frankfurt breaking 60 degrees Fahrenheit. Autumn in Paris (and Berlin and Amsterdam) was remarkably mild. The EU has consumed one-fifth to one-quarter less energy than usual. Much higher costs have also contributed to declines in demand (more and more). EU natural gas storage facilities are more than 80 percent full (more and more). The price of a March futures contract for natural gas is now less than one-quarter the late August price per the Dutch TTF benchmark (see chart below). (The US Henry Hub price has also fallen.)

By late April 2023 the European benchmark price for natural gas was less than one-fifth its summer 2022 peak. Demand, supply, and winter weather all went much better than we had any good reason to predict in Spring 2022.

This week the first cold wave of the winter has descended on Europe. Next week will be even colder. Five days of snow is predicted for Berlin. Despite this early cold start, the long-range forecast is for another mild winter. Severe Weather Europe summarizes its seasonal forecast with “Europe is expected to have warmer-than-average temperatures over most of the continent. Colder temperatures will be more defined in the northern and northwestern parts of the continent.” Fingers-crossed.

Below is an S&P Global demand and supply update you first saw here in late September. This was a very encouraging set-up for early autumn.

On Tuesday Reuters headlined: Europe’s Gas Crisis is Ended but then added a comma plus “but not the painful adjustment.” John Kemp then reports:

EU and UK gas inventories peaked at a record 1,146 TWh on Nov. 6 which was +190 TWh (+20% or +1.97 standard deviations) above the prior ten-year seasonal average. Storage sites were a remarkable 99.6% full, which was more than 10 percentage points over the 89% average for the previous ten years… It is still very early in the winter heating season, so there is still considerable uncertainty about how much gas the region will consume and how much it will carry over to the summer 2024 refill. But based on storage changes in the last ten years, inventories are projected to be 591 TWh at the end of winter 2023/24 which would leave storage 52% full. Even a very cold winter would leave inventories of 401 TWh (35% full) while a very mild winter could leave as much as 804 TWh (70%).

The wise if not yet wizened Mr. Kemp then comments:

The region’s challenge is how to cope with relatively high gas prices in the medium term if relatively inexpensive pipeline gas from Russia is permanently swapped for more expensive liquefied natural gas (LNG). Greater reliance on LNG rather than fixed pipelines also means Europe’s gas prices will increasingly be determined by weather, business cycles and policies outside its borders, especially in Asia. Europe will always be able to outbid rivals to secure sufficient volumes LNG on account of its higher income and wealth but the prices it pays will increasingly be determined elsewhere.

Pull attracts push. Demand organizes supply. But every pool of pull is limited. Pulling this more expensive flow from here, leaves somewhat less pull to attract that from there.

Infographic: European gas, power demand set for first gains since crisis