European gas depletion slows, but not enough to lower prices

OSLO: Europe’s gas storage levels are still below the five-year average, with prices expected to remain elevated despite the arrival of liquefied natural gas (LNG) cargoes to offset limited Russian pipeline flows.

The region’s storage levels have been unusually low since last winter, which has been partly responsible for wholesale prices to shoot up to unprecedented highs that have put some suppliers out of business and inflated household bills.

The power price shock along with high oil prices also added to wider inflationary pressure.

The economics for buyers still encourage withdrawals of gas from storage rather than paying higher prices for Russian supply, though depletion rates have slowed somewhat since Christmas. That slowdown has largely been because of fresh LNG supply chasing higher Dutch gas prices at the TTF hub after it rose above the Japan-Korean-Marker (JKM) reference price this month.

Relatively mild winter weather has also helped to ease the drawdown on inventories.

U.S. LNG shipments to European destinations rose to their highest in at least two years in December, Refinitiv Eikon data shows, though storage levels are still well below the five-year average.

“We’re still looking at inventories at the moment of about the 13 billion cubic metre (bcm) mark for end of March, up from a low of just 5 bcm for northwest Europe after the ‘Beast from the East’ cold weather event in 2018,” said James Waddell, head of European gas at Energy Aspects.

The five-year average for the end of March is 16.6 bcm, he added, adding that this covered the UK, Belgium, Germany, France and the Netherlands.

“So, we’re more relaxed going into late winter, but we’re not fully out of woods,” Waddell said.

Furthermore, Asian LNG has now moved back to trading at a premium to Dutch gas, which could send more cargoes to Asia again.

With prices high, it also makes more sense to rely on gas from storage rather than buy more pipeline imports to cover demand.

Flows on some Russian pipelines to Europe have fallen significantly in recent months and even reversed in an eastward direction into Poland at the German border point of Mallnow.

This is because Gazprom is not choosing to supplement gas deliveries above contracted volumes, but also because of “rock-bottom” nominations from European clients, Energy Aspects’ Waddell said.