After a long, dark winter, the harbingers of spring are always welcome at this time of year; but perhaps this year more than any other. As Europe begins to emerge from winter 2022/2023, we can be thankful that the season has been relatively mild. The unseasonably warm weather – combined with mammoth efforts to conserve gas, source alternative energy supplies, and fill storage facilities – has ensured that the continent has managed to avoid an energy crisis following drastically lower gas imports from Russia.
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Back in the Autumn issue of Tanks & Terminals, I commented on how Europe seemed to be in good shape to get through the coming winter. As a reminder, analysts from Goldman Sachs had forecast that the continent’s storage facilities would remain more than 20% full by March 2023, with an expectation that wholesale natural gas prices would fall below €100/MWh by the end of 1Q23. A few months on, and things are looking even brighter than anticipated. At the time of writing, Europe’s natural gas prices had fallen to their lowest level in 18 months, with the benchmark gas price dropping to €48.90/MWh. Meanwhile, as of 15 February, gas storage levels stood at approximately 65% according to Gas Infrastructure Europe.
All of this has started to quell the broader fear that Europe might face an even bigger challenge in the 2023/2024 winter season, as it faces up to the challenge of replenishing storage reserves with lower Russian supplies than at the start of 2022. Forecasts of a mild March should ensure that storage levels remain healthy, and that the task of refilling reserves isn’t too much of a challenge. Henning Gloystein, Director of Energy, Climate and Resources at Eurasia Group, has even claimed that Europe seems to have “successfully weaned itself off Russian gas.” While noting that natural gas is still relatively expensive compared with the long-term average prior to Russia’s invasion of Ukraine, Gloystein explained that “current price levels do not reflect a risk of shortages anymore, as much as they did much of last year.”
However, some experts remain cautious, especially in light of a sleeping dragon that is starting to emerge from its COVID-induced slumber. While LNG has played a key role in ensuring Europe’s energy security this winter, competition for shipments is likely to increase in the near future as China’s economy begins to reopen following its decision to ditch its strict zero-COVID policy in December. The country’s hunger for natural gas could be insatiable, which may exert upward pressure on gas prices. Tom Marzec-Manser, Head of Gas Analytics at ICIS, said: “While storage levels are high in Europe and Asia is not showing any immediate signs of trying to outcompete the Atlantic for cargoes, the falling price will undoubtedly reignite some demand for gas, both in the industrial and power sectors.”
Although Europe should certainly congratulate itself on navigating a bleak winter, it’s clear that there is little time for basking in the joys of spring. There is still plenty of work to be done to ensure that the long-term future remains bright (and warm).