Column: Mission accomplished? Europe fills gas storage ahead of schedule

The Astora natural gas depot, which is the largest natural gas storage in Western Europe, is pictured in Rehden, Germany, March 16, 2022. Astora is part of the Gazprom Germania Group. REUTERS/Fabian Bimmer/File Photo

LONDON, Oct 4 (Reuters) - Europe is entering winter with a near-record volume of gas in storage after buying large volumes at almost any price over the summer to prepare for an interruption of supplies from Russia.

Gas inventories in the European Union and the United Kingdom (EU28) had climbed to 996 terawatt-hours (TWh) by Sept. 30, according to data from Gas Infrastructure Europe (GIE).

For the time of year, inventories were at the third highest on record, with higher volumes only in 2020 (1,074 TWh) and 2021 (1,067 TWh) (“Aggregated gas storage inventory”, GIE, Oct. 4).

Storage had risen by around 700 TWh from its post-winter low, the second-fastest increase on record, as suppliers purchased as much gas as possible despite exceptionally high prices.

As a result, stocks ended the summer refill season +98 TWh (+11% or +0.83 standard deviations) above the prior ten-year average.

This is a huge turnaround from the end of January, when they were -134 TWh (-23% or -1.34 standard deviations) below.

Chartbook: EU28 gas storage

Inventories are likely to continue increasing for at least another three weeks until late October, but the build could persist into early November, depending on temperatures and how far high prices restrain consumption.

Since 2011, the median date on which storage peaked was Oct. 26, but in two cases inventories continued rising into the first half of November.

Late-season storage builds are doubly beneficial for supply security: late builds increase pre-winter inventory and postpone the start of depletion.

Exceptionally high prices should prolong storage builds this year later than normal unless temperatures become exceptionally cold by late October.

Based on previous seasonal movements, storage is expected to peak around 1,025 TWh, with a likely range from 1,009 TWh to 1,053 TWh.

But the volume of gas in store is still increasing at an average rate of more than 2.3 TWh per day, implying it is likely to climb towards the top of the range.

IS IT ENOUGH?

EU storage is more than 89% full and UK storage is more than 94% full, with extra stocks likely to be added over the next 3-6 weeks.

Storage is well ahead of the formal target of 80% this year (preferably 85%) by Nov. 1 agreed by the EU in June (“Council adopts regulation on gas storage”, European Council, June 27).

European governments have fulfilled their stated objective of maximising the volume of gas in storage ahead of winter 2022/23 to reduce the impact of a disruption of pipeline supplies from Russia.

But storage is intended to deal with seasonal variations in consumption, not provide a strategic reserve in case of an embargo or blockade.

Maximising the volume of stored gas will alleviate the impact of any supply disruptions but it is not enough to guarantee supply security.

In the event of a complete cessation of imports from Russia, a colder than normal winter, or both, gas would become scarce before the end of March 2023.

Even if Europe scrapes through this winter, inventories are likely to end at very low levels, requiring another, perhaps even bigger, restocking next year ahead of winter 2023/24.

Inventory accumulation has put Europe in a stronger position than at this time last year but regional supplies are still at risk which will require further action from the market and policymakers.

Supply security depends critically on the ability to reduce consumption well below prior year levels - irrespective of temperatures and the level of heating demand.

Related columns:

- Europe tops up gas stocks, but winter demand cuts essential (Reuters, Sept. 7)

- EU prepares public opinion for winter gas siege (Reuters, July 27)

- Europe forced to pay even higher prices to fill gas storage (Reuters, July 5)

- Europe fills gas storage at record rate as Asia's buyers step aside (Reuters, May 17)

- Europe makes rapid start on refilling gas storage (Reuters, May 4)

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

Editing by Mark Potter

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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.