Latest News

Europe's inflamed gas stocks drive costs lower: Kemp

Northwest Europe is approximately twothirds of the way through the heating season, with a record volume of gas in storage for the time of year, which is putting downward pressure on gas costs.

Gas inventories throughout the European Union and the United Kingdom stood at 771 terawatt-hours (TWh) on Feb. 10, according to data compiled by Gas Facilities Europe (GIE).

Stocks were 238 TWh (+45% or +1.95 standard deviations). above the prior 10-year seasonal average and the surplus had. swelled from 167 TWh (+18% or +1.70 basic discrepancies) at the. start of October.

As an outcome, storage centers were still 67% full compared. with a ten-year seasonal average of 49% ( Aggregated gas storage. stock, GIE, Feb. 13).

Futures costs have currently fallen dramatically, particularly for. neighboring months, to encourage more intake before winter season ends. and flush out a few of the excess stocks.

MILD WINTER SEASON

At Frankfurt in Germany, two-thirds of the heating degree. days each winter take place on average on or before Feb. 10.

With the heating season entering its final third, it is very. most likely stocks will end the deficiency season at or near to a. record high.

Based on the behaviour of stocks over the last 10. years, stocks are on course to end winter season 2023/24 at 628 TWh,. which would be the second greatest on record after 629 TWh at the. end of winter season 2022/23.

The forecasted carryout has increased from 554 TWh on Oct. 1,. as an outcome of warmer than average temperatures and the. continued effect of high rates reducing usage by. market and families.

Temperatures at Frankfurt were above the long-lasting average. on 94 out of 133 days between Oct. 1 and Feb. 10.

Temperatures have actually been above average monthly up until now this. winter however particularly in October (2.5 Celsius) higher than. normal) and December (+2.8 C).

The total number of heating degree days because the start of. the heating year has been 21% lower than usual at 1,133 compared. with a long-lasting average of 1,441.

Chartbook: Europe gas stocks and rates

Offshore winds were more powerful than the seasonal average in. both December and January, boosting electricity production from. wind farms.

The windy and mainly mild weather condition has cut direct gas. consumption by homes and in other buildings in addition to by. power generators.

At the exact same time, industrial intake has actually been suppressed by. a combination of plant shutdowns triggered by high fuel rates and. a slump in business cycle.

Germany's energy-intensive markets (consisting of iron and. steel, ceramics, glass, fertilisers and chemicals) reported. production was down by more than 22% in December 2023 compared. with the exact same month 2 years earlier.

The European Union's seven biggest gas-consuming nations. ( Germany, Italy, France, Netherlands, Spain, Belgium and Poland). reported below-average usage monthly in 2023.

For the year as an entire, total consumption in the seven. major consuming nations was down by 7% compared with 2022 and. 19% compared to 2021.

EXCESS STOCKS

Storage websites across the European Union and UK. are on track to be almost 55% full at the end of winter 2023/24. ( with a maximum likely variety from 44% to 61%).

Temperatures are predicted to remain above normal throughout the. European Union and UK through completion of February. according to the European Centre for Medium Variety Weather. Projections.

The seasonal gas storage surplus is likely to continue. swelling with storage likely to complete the winter season almost. 60% full.

With a lot gas rollovered there will not be much less. storage space than usual to absorb more during the summer season refill. season in 2024.

COST SLIDE

Prices for gas to be provided in March 2024 have actually fallen to. an average of 30 euros ($ 32.15) per megawatt-hour so far in. February from 52 euros in October.

Rates for March 2024 (the last complete winter month) are. trading below prices for April 2024 (the first spring month) to. encourage more usage and purge some excess stocks.

As an outcome, the end-of-winter calendar spread from March to. April 2024 remains in a typical contango of 0.22 euro cents so far. in February below an average backwardation of 1.44 euros in. October.

Front-month rates of 28 euros in February are in the 55th. percentile for all months given that the start of the century, as soon as. changed for inflation.

Real front-month futures prices have actually pulled back from 47 euros. ( 88th percentile) in October 2023 and a record 251 euros in. August 2022.

Most energy-intensive industrial consumers purchase gas on the. forward market however here too costs have actually pulled back to motivate. more use.

The calendar strip for the year-ahead (in this circumstances. purchases over the course of 2025) has actually averaged 33 euros up until now. in 2024 down from 52 euros in 2023 and 121 euros in 2022.

After changing for inflation, year-ahead costs are simply 5. euros (21%) above the average for the ten years before Russia's. invasion of Ukraine in 2022.

Area and forward rates are most likely to remain under downward. pressure till the storage surplus stabilises and leaves enough. space to soak up excess seasonal gas production over the summer season of. 2024.

Related columns:

- Brazil's hydro power contributes to worldwide gas surplus (February. 9, 2024)

- Europe's gas cost falls to motivate more industrial usage. ( January 4, 2024)

- Record warmth leaves world with too much gas (December 15,. 2023)

- Europe's energy crisis is over (November 28, 2023)

John Kemp is a market expert. The views revealed. are his own. Follow his commentary on X https://twitter.com/JKempEnergy.

(source: Reuters)