Does Europe’s current gas inventory affect market prices? Yes, Europe’s unusually high gas stocks for this time of year have been driving down prices due to lower-than-average consumption and a mild winter.
Two-thirds through the heating season, Europe finds itself with record-breaking gas inventories, creating a significant impact on market prices. Gas Infrastructure Europe (GIE) reports that as of February 10, reserves stood at 771 terawatt-hours (TWh)—a remarkable 45% above the ten-year seasonal average. This surplus places significant downward pressure on gas prices, a trend that could continue into the summer months.
The mild winter across the continent has played a significant role in the accumulation of these gas stocks. Key cities like Frankfurt, Germany, have experienced temperatures well above average, reducing the need for heating and contributing to less gas consumption by households and businesses alike.
The situation is compounded by stronger offshore winds than usual, which have boosted wind farm electricity production, further decreasing the demand for gas-powered electricity generation. This combination of factors has not only lessened the direct consumption of gas but also pushed futures prices down, particularly for the approaching months.
Industrial consumption, too, has been notably subdued due to the economic downturn, with Germany reporting a more than 22% drop in production from energy-intensive industries in December 2023 compared with two years prior. The seven largest gas-consuming countries in the European Union have all reported lower-than-average gas usage this year.
As a result, gas storage facilities are estimated to close the winter season nearly 55% full, a significant difference compared to normal levels. This surplus poses a challenge for the summer refill season, as there will be less storage capacity available than usual.
Reflecting the excess stocks, the price for March 2024 delivery has seen a sharp decline from 52 euros in October to an average of 30 euros in February. Additionally, year-ahead prices on the forward market have retreated, now only 21% above the ten-year pre-invasion average after adjusting for inflation.
This dynamic suggests a continued softening of spot and forward gas prices until the surplus stabilizes, leaving enough room for the usual summer gas production influx. As Europe navigates through these unprecedented times, the overarching trend in gas inventories and prices will likely remain a central point of analysis for energy markets.
What’s your take on this? Let’s know about your thoughts in the comments below!