Europe heads into winter with gas stocks at 13-year low

Europe is heading into the colder months with gas storage at its lowest level in 13 years, triggering what analysts have described as “winter panic” among energy traders and raising fears of sharp price volatility.

EU gas storage facilities were 63% full in the final week of August, well below the roughly 80% average for this time of year. At the current sluggish rate of injections, the bloc is expected to enter the winter heating season with inventories about one-fifth below the five-year average and at their lowest level since 2013, gas analyst Greg Molnar told the Guardian.

“Low storage levels are naturally increasing the risk of heightened winter price volatility,” Molnar said, warning that “cold spells or slow wind patterns” could further increase gas consumption.

The UK is particularly exposed because it is one of Europe’s biggest gas consumers but has among the continent’s lowest domestic storage capacity. Britain relies heavily on pipeline imports from Europe and LNG cargoes from the US and Middle East. Chris O’Shea, chief executive of British Gas owner Centrica, said this week that the UK had “almost no gas in storage” for the coming winter.

European inventories have struggled to approach the bloc’s reduced target of 80% full before winter following severe disruption to Gulf oil and gas exports after the US-Israel war with Iran. A cold end to last winter and unusually high gas-fired power generation during Europe’s summer heatwaves have also depleted reserves.

Gas prices remained “relatively calm” during much of the summer as traders hoped the Strait of Hormuz would reopen and allow inventories to recover. But Bjarne Schieldrop, chief commodities analyst at Nordic banking group SEB, said “no one expects it to happen any time soon”.

“As a result, the European natural gas market has run into a bit of a winter panic over the past week,” Schieldrop added.

Europe is not currently expected to suffer physical gas shortages this winter, but prices are likely to rise. The benchmark gas price has climbed above €68 per megawatt-hour, a three-year high and more than double its level at the start of the year.

Goldman Sachs analysts said that without renewed Middle Eastern gas exports, the European benchmark price “would likely need to move above €100/MWh” to attract enough LNG to meet winter demand.

Supply concerns are particularly acute in western Europe. Italy and Poland have filled storage above 80%, while Germany’s facilities are about half full. Belgium and the Netherlands, which are directly linked to the UK gas market, are at 51% and 45%, respectively.

Britain’s reliance on imports is expected to deepen as North Sea production declines and Norwegian output begins falling from 2030. The government is considering financial support for storage facilities and pipeline operators after an official consultation warned that homes and businesses could face gas shortages within the next decade.

Meanwhile, Ofgem said typical UK gas and electricity bills will rise 4% from October, following a 13% increase in July, reflecting higher global energy prices linked to the war with Iran.

By Tamilla Hasanova