Europe’s gas inventories get respite from warm weather
Europe’s gas inventories swelled at the end of December and beginning of January thanks to a combination of mild weather and an influx of liquefied natural gas cargoes.
The unusual seasonal increase has eased fears stocks would drop to critically low levels before the end of winter and reversed the blistering rally in prices and calendar spreads.
Benchmark futures prices based on deliveries on the Dutch Title Transfer Facility (TTF) in February 2022 have fallen to around 93 euros per megawatt-hour from 180 euros on Dec. 21.
The spread between futures prices for deliveries in March and April, at the end of winter, has shrunk to a backwardation of 8 euros per MWh from 38 euros on Dec. 21.
An extended period of unusually warm weather over Christmas and New Year has cut heating demand for both gas and gas-fired electricity, cutting the drawdown of inventories.
Temperatures across the main population centres of Northwest Europe were well above the seasonal average for 7-10 days from just before Christmas into the first week of January.
Over the same period, pipeline flows and the arrival of LNG cargoes resulted in the fastest additions to storage for more than three months.
As a result, the storage balance in the European Union plus Britain swung to a net injection of almost 2,500 Gigawatt-hours on Jan. 2 from a net withdrawal of 8,000 GWh on Dec. 22.
In the 10 days ending on Jan. 4, estimated inventories declined by just 3,200 GWh, the smallest drawdown over the same period for a decade.
More than half of the winter heating season still lies ahead but the risk of inventories falling to critically low levels by its end and creating shortages has reduced sharply.
If there is a sustained spell of cold weather later in January or February, prices and spreads are likely to spike higher.
But the combination of mild weather, LNG arrivals and depressed consumption over the Christmas-New Year period has reduced some of the previous extreme pressure on gas stocks and prices.
Source: Reuters (John Kemp is a Reuters market analyst. The views expressed are his own)