After an incredibly tough year so far, there is a glimmer of hope in Europe’s energy markets. Goldman Sachs recently said that the continent may have “successfully solved” its supply headaches this winter, with European countries rushing to fill their gas storage facilities before the temperatures start to drop. At the end of August, European Commission President Ursula von der Leyen celebrated the fact that the EU had met its gas storage filling goal two months ahead of its original 1 November target, with reserves hitting an average of 80%. Goldman Sachs’ analysts expect the storage facilities to be 90% full on average by the end of October.
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All of this has created market confidence that supplies won’t run short, even in the event that Russia completely cuts off gas exports to Europe throughout the winter – a prospect that seems increasingly likely following Russia’s decision to extend the shutdown of gas flows through the Nord Stream 1 pipeline indefinitely. Goldman Sachs expects Europe’s storage facilities to remain more than 20% full by March 2023.
Assuming that Europe successfully avoids big shortages in the coming months – which could depend on mother nature gifting the continent a mild winter – Goldman Sachs expects European wholesale natural gas prices to fall sharply from approximately €215/MWh to below €100/MWh by the end of 1Q23 (assuming typical weather conditions).
Another leading US bank, JPMorgan Chase & Co., has reiterated the view that Europe should be fine this winter, predicting that storage facilities will likely not dip below 30%. However, speaking to Bloomberg Television, Christyan Malek, Managing Director and Head of EMEA oil and gas research at the bank, said: “The issue is not this winter, it’s into next winter, and then we start to debate: how do we actually structurally fix this long-term supply issue of energy?”
The fact remains that Russian gas helped to boost reserves this year. Without it, things will not be easy. Nearby suppliers such as Norway, Azerbaijan, and Algeria do not have sufficient capacity to offset Russian gas, and imports from further afield come with their own challenges. While Europe is rushing to build more LNG import terminals – for instance, Germany plans to open its first floating LNG terminal in the coming months – it will take time to build the necessary infrastructure, particularly sufficient storage capacity. And import infrastructure is only half the story. As Ed Morse, Global Head of Commodities Research at Citigroup Inc. told Bloomberg TV recently, capacity for exporting LNG “doesn’t grow overnight.” Global LNG production is tight and it takes at least three years to increase capacity, according to Colin Parfitt, Vice President at Chevron Corp.1 What’s more, Europe faces increased competition for existing volumes from Asia, which has its own set of energy challenges...
This issue of Tanks & Terminals begins with a detailed regional report from our Contributing Editor, Ng Weng Hoong, which explores the intricacies of Asia’s storage sector – from China and India, to Pakistan and Sri Lanka. The piece also takes a look at the current state of play in Australia, which has been guilty of neglecting its oil stockpiles over the past decade.
While getting through the coming winter will be an enormous achievement in itself, it’s clear that the energy supply challenge is only just beginning.
- SHIRYAEVSKAYA, A., SEZEM, V. and MAZENA, E., ‘Europe’s winter gas shortages set to last at least until 2025’, Bloomberg, (7 September 2022).