By Nora Buli

OSLO (Reuters). European gas storage levels are lower than expected after a mild winter, unprecedented deliveries of liquefied LNG (LNG), and refilling will prove difficult this summer.

Winter gas season is from October through March, while summer gas season begins in April. In the summer season, wholesale gas prices and demand tend to be lower so more gas is stored. But, last year this did not occur.

Due to high Asian LNG demand and low-than-normal Russia pipeline flow, global supply was limited. For the summer, wholesale prices were extremely high and restricted gas injections into storage.

Europe was forced to enter winter without gas storage for at least 10 more years.

Prices have reached record highs due to concerns that Russian gas supplies could be interrupted if Russia invades Ukraine. Russia has deployed troops close to Ukraine’s borders, but it repeatedly denies plans for invasion.

Laura Page, senior LNG analyst for Kpler, stated that “storage isn’t expected to end winter below critical levels” and this provides Europe with a little buffer. However, this has implications on the restocking of demand in this summer.

Rystad energy data indicates that the storage levels in northwest Europe are about 10% less than the 2021 volume. Gas Infrastructure Europe data revealed that Europe’s storage levels are still at 32.6%, a 5-year low.

Gas storage Europe – https://graphics.reuters.com/POWER-PRICES/gdpzynoobvw/chart.png

James Waddell from Energy Aspects, the head of European gas for consultancy Energy Aspects said that Europe received 13.15 billion cubic meters of LNG exports in January. This was after Asia had stopped competing with Atlantic basin cargoes.

The European LNG receptions are forecast to remain strong this year but will fall as Asian buyers need restock. Japan also covers any nuclear outages using LNG, and Asia is growing, he said. 

U.S. LNG arrivals Europe – https://graphics.reuters.com/POWER-PRICES/egpbkldrrvq/chart.png

But, there could be more LNG capacity available this year, and producers may postpone LNG infrastructure maintenance to benefit from high prices. Carlos Torres Diaz is head of power markets at Rystad Energies.

He said that Russia will not send more natural gas to Europe due to its unwillingness to build additional capacity for this year’s pipelines.

Russian pipeline flows to Europe – https://graphics.reuters.com/POWER-PRICES/movanygeqpa/chart.png

The lack of financial incentives to fill up is another problem. Storage of gas comes at a cost. This means that buyers will need lower prices this summer than in the winter following to increase their stocks. But wholesale prices for gasoline are the same as last year.

TTF monthly forward contract- https://graphics.reuters.com/POWER-PRICES/egvbklddrpq/chart.png

Reuters obtained a draft document on Friday that showed the European Union proposing to require countries to stock natural gas storage before each winter. This is to help bolster supplies and to cope with disruptions in supply.

The Commission proposed a law requirement that Member States ensure minimum storage levels by 30 September each year,” said the Commission in draft form. This document is still under revision.

According to the Commission, companies are unlikely to have enough gas stored if they rely on only market incentives. Gas prices will likely remain high until at least the end of next year.