Column: European gas stocks deplete rapidly in cold start to winter

Gas compressor station, in Mallnow
Pipes are pictured at a gas compressor station in Mallnow, Germany, November 1, 2021. REUTERS/Hannibal Hanschke

LONDON, Dec 7 (Reuters) - Europe’s gas stocks started the winter at their lowest for eight years and have been depleting rapidly, heightening concerns they could become uncomfortably low in early 2022 and exert upward pressure on prices.

Inventories in the EU and Britain (EU28) fell to the equivalent of only 742 terawatt hours (TWh) on Dec. 5. That was the lowest for this time of year since 2013, according to data compiled by Gas Infrastructure Europe.

Stocks have reduced by 97 TWh (12%) since the start of October, one of the largest drawdowns in the past decade, despite prices trading near record highs, which had been expected to limit consumption.

Storage facilities are now only 66% full, a level of depletion they would not normally reach until the middle of January in an average winter.


Lower than normal temperatures across much of Northwest Europe so far this autumn and winter have intensified gas consumption and the pressure on storage.

Average daily temperatures in Frankfurt, Germany, have been below the long-term seasonal average for 11 of the past 14 days.

Frankfurt temperatures have averaged 0.4°C below the long-term seasonal norm over the 62 days since the start of October, boosting heating demand.

At the same time, wind speeds have been slower than average over the past two months, which has depressed electricity generation from wind farms.

The result has been increased direct consumption for residential and commercial heating as well as increased indirect consumption for power generation.

Futures prices for gas delivered in January 2022 on the Dutch Title Transfer Facility virtual trading hub have rebounded to 95 euros per megawatt hour (MWh), up from 65 euros at the end of October.

And the calendar spread between March and April 2022, related to storage levels at the end of winter, has surged into backwardation of almost 30 euros/MWh, up from 13 euros at the end of October.

With the heating season less than a quarter done, traders are anticipating increased probability that inventories will fall to critically low levels if the winter remains colder than normal for an extended period.

Given the pressure on stocks, Europe’s gas market is still only one supply disruption or extreme cold weather event away from another price spike.

John Kemp is a Reuters market analyst. The views expressed are his own.

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- Forget Russian intentions, fundamentals drove up Europe's gas price (Reuters, Oct. 8) read more

- Europe’s gas prices surge to avert risk of winter shortage (Reuters, Oct. 6) read more

Editing by David Goodman

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John Kemp is a senior market analyst specializing in oil and energy systems. Before joining Reuters in 2008, he was a trading analyst at Sempra Commodities, now part of JPMorgan, and an economic analyst at Oxford Analytica. His interests include all aspects of energy technology, history, diplomacy, derivative markets, risk management, policy and transitions.