The gas reserves in Europe they remain well below their seasonal average, while high gas prices make it difficult to replenish tanks before winter. Europe enters the final phase of the injection season with its storage facilities at around 69% of capacity, compared to the approximate average of 85% recorded over the past five years for this time of year.
This difference increases concerns about security of supply in the lead-up to peak consumption months, at the same time, high prices are forcing companies to choose between buying now to bolster their inventories or waiting for a potential price drop.
Germany and the Netherlands account for part of the deficit
Germany and the Netherlands play a particularly important role in this scenario, together they account for around 35% of the bloc’s storage capacity and are experiencing some of the longest delays in restocking. The situation is especially significant in Germany due to the importance of energy-intensive industries in its economy.
For companies that need to store gas, waiting for lower prices involves taking a risk, if purchases are delayed and the market rises again during the fall, filling the tanks could become even more expensive.
Jonathan Schroer, a strategist at UniCredit, noted that each month of delay in restocking increases the pressure on prices as the peak winter consumption period approaches.
Gas reserves in Europe return to the center of the market
The wholesale market already reflects some of these tensions, the European gas the benchmark price has been negotiated at around 81-82 euros per megawatt-hour, a considerable increase compared to the previous year.
The evolution of the Dutch TTF is once again closely linked to the level of European reserves, this variable is further influenced by the availability of liquefied natural gas (LNG) and changes in international supply flows.
The disruptions in the international market have also reduced the opportunities to take advantage of the summer to replenish inventories at lower prices. As a result, Europe has less room to fill its reserves before the seasonal increase in demand.
Morgan Stanley believes that certain weather conditions could push European gas prices towards €100 per MWh. In this scenario, temperatures will be key in determining the rate at which stockpiles are depleted during the winter.
A cold winter would increase pressure on reserves
Gas storage facilities act as a backup during periods when demand exceeds normal supply flows, starting the heating season with less gas stored reduces the available buffer in the event of prolonged cold spells or further disruptions.
The scenario, however, presents important differences compared to the energy crisis of 2022, since then, Europe it has diversified some of its supply sources and expanded its capacity to receive LNG.
Even so, below-average stocks increase reliance on imports during the winter itself, if stocks decline rapidly, the problem could also extend into 2027, when the continent will have to begin a new replenishment campaign.
The ECB is monitoring the impact of gas prices on inflation.
Energy prices are once again playing a significant role in the economic outlook, with the European Central Bank monitoring the transmission of gas and electricity costs to eurozone inflation.
The effect is not limited to energy bills, industries that consume large amounts of energy may face higher production costs, especially sectors such as chemicals, construction materials, and other manufacturing activities.
This pressure is compounded by the behavior of the refined fuels an increase in the price of diesel and other derivatives can make transport more expensive and subsequently affect different segments of the production chain.
Energy costs add pressure to European governments
Rising energy costs also pose fiscal challenges for governments, measures such as tax cuts or direct aid can temporarily alleviate household and business bills, although they also entail costs for public finances.
In Germany, this discussion coincides with a political debate on the country’s energy strategy, according to Reuters, Alternative for Germany (AfD) has proposed restoring Russian gas supply contracts within its energy proposals.
Italy, for its part, has considered tax measures related to vehicles and fuels, while other countries are analyzing different responses to the increase in energy costs.
With storage facilities still below normal levels, Europe faces a particularly crucial few weeks for its energy balance. The rate of replenishment, LNG imports, international prices, and, subsequently, temperatures will determine how much leeway the continent will have when the peak demand period begins.
Source: Reuters
Photo: Shutterstock
