Europe’s risk of winter gas price spikes drops despite record low storage

Record gas imports from Russia and Norway have dampened the chances of significant gas price spikes in European markets this winter, despite the all-time lows seen in the continent’s largest gas storage stocks.

Germany’s total 24 billion cubic meter storage capacity currently stands at just 73 per cent of capacity, the lowest ever recorded level for the start of the winter season.

But record imports from Russia into Europe over the summer combined with a stronger Norwegian gas production has left the gas supply picture looking healthy. And analysts suggest the ample supply is set to continue through to early 2016.

Thomson Reuters Point Carbon gas analyst Oliver Sanderson told Utility Week that only a prolonged and extremely cold winter could lift the cost of winter gas which is currently dragging at six year lows.

“And even then we should have sufficient supply to mitigate significant spikes in price,” Sanderson said.

Point Carbon is set to publish its winter outlook report at the end of the month, showing a significant increase in summer supply and forecasts of even greater winter volumes from Russian.

Russian gas imports into Europe over the summer were 20 per cent higher than last summer and are expected to rise 45 per cent above last year’s winter output as European buyers take advantage of cheap oil indexed prices.

“There is little supply risk in the market after a strong summer of record imports and a healthy outlook for more to come. The low oil price should guarantee high uptake of Russian gas in Q1 2016, similar to the peak levels around 350 million cubic meters per day seen this summer.

In addition, Norwegian production looks healthy and is set to remain strong in Q4 2015. High imports from Russia to all of Europe, but with more coming to the UK than ever before, means that reduction in Dutch gas, due to seismic activity around Groningen, is sufficiently replaced without increasing prices,” Sanderson said.

Any concern over Germany’s record low storage levels is unfounded, he added.

“German gas storage facilities were built for a demand curve that has never materialised, so even though their percentage storage levels are lower as a percentage than usual this does not mean that there isn’t ample gas storage for the winter.”

Although German gas storage is just 73 per cent full it currently holds over 16 billion cubic meters (bcm) of gas while the UK, at 86 per cent capacity, holds just 3.5 bcm.

The UK began the summer season with its second lowest gas inventories on record combined with the prospect of a 30 per cent reduction in the amount it can inject into winter holding facilities until October, raising concerns over gas price spikes.

But with the continental outlook pointing to ample supply and additional strong liquefied natural gas imports into UK ports, wholesale prices are expected to continue to slide.