Europe is heading towards the conclusion of the winter of 2023/24 with gas inventories poised to reach a near-record high.
This unexpected surplus is primarily attributed to the region’s exceptionally mild temperatures, which have failed to deplete the significant surplus carried over from the previous winter.
As of December 31, gas inventories in the European Union and the United Kingdom stood at 996 terawatt-hours (TWh), marking a seasonal record, according to Gas Infrastructure Europe (GIE) data.
These stocks surpassed the previous ten-year average by 229 TWh, equivalent to a 30% increase, or 1.97 standard deviations.
Since the heating season began on October 1, the surplus had grown by 167 TWh, a remarkable 18% increase or 1.70 standard deviations.
The principal consumption area, Northwest Europe, experienced unusually warm temperatures during the final three months of 2023, leading to reduced heating demand and gas consumption.
Frankfurt, Germany, saw temperatures 2.3 degrees Celsius above the long-term average from October to December, while London’s Heathrow airport recorded temperatures 1.1 degrees above the seasonal average during the same period.
December witnessed especially mild temperatures, resulting in only a minor reduction in gas inventories.
By the end of the month, storage sites were still 86.5% full, the second-highest level on record and 15 percentage points higher than the ten-year seasonal average.
Based on historical weather patterns and depletion rates over the past decade, it is projected that inventories will conclude the winter at 616 TWh, within a likely range of 481-792 TWh.
This central projection would rank as the second-highest carryout on record, approaching the levels seen at the end of the winter in 2022/23.
Europe’s gas inventories are unlikely to reach uncomfortably low levels before the conclusion of the winter, with EU and UK storage sites anticipated to be almost 54% full, within a likely range of 42% to 69%.
High storage levels may present challenges during the summer 2024 refill season when the global gas market is expected to be in surplus.
After a period of scarcity pricing between mid-2021 and the end of 2022 due to geopolitical factors, Europe now faces the unusual need to stimulate gas consumption.
Futures prices have declined significantly to incentivize consumption and reduce excess inventories.
Prices for gas delivery in January 2024 dropped to an average of 36 euros per megawatt-hour in December, down from 52 euros in October.
While real prices remain relatively high compared to the five-year average before recent geopolitical events, they are no longer exceptionally high.
Prices are expected to continue their downward trend, but recovery in energy-intensive industrial sectors will be crucial to stabilizing prices.
In conclusion, Europe’s abundant gas inventories, driven by mild temperatures, are expected to persist into the winter of 2023/24, with prices trending lower to encourage consumption and spur industrial demand recovery.