Commodities 2023: All eyes focused on European gas storage levels into 2023

European gas market players will be keeping a close eye on the rate at which European gas storage sites are drawn down this winter given their importance to market dynamics through the summer and into next winter.

EU officials believe Europe will make it safely through this winter given the high level of storage stocks and robust LNG imports, but sparse Russian gas deliveries raise major question marks over re-filling next summer.

Some in the industry are also concerned that more cold spells this winter -- like the extreme cold in early December -- could see gas storage levels drop to low levels.

That in turn could trigger new price spikes in the summer as European countries scramble to find gas to refill their storage sites.

But mild weather through January, February and March could see stocks remain at relatively healthy levels headed into next spring.

Arguably, it was EU-mandated gas storage filling targets that helped push European gas prices to record highs in late August, together with Russian gas supply curtailments.

Platts, part of S&P Global Commodity Insights, assessed the benchmark Dutch TTF month-ahead price at an all-time high of Eur319.98/MWh on Aug. 26.

Prices have weakened since on the back of healthy storage and demand curtailments, though prices remain historically high with Platts assessing the TTF month-ahead price Dec. 28 at Eur82.30/MWh.

Last cycle

The EU began the last storage injection season with stocks filled to just 25% of capacity, largely a result of Russia's Gazprom failing to restock its European gas facilities such as Rehden in Germany.

The EU in June imposed a storage filling target of 80% by Nov. 1 -- with a collective aim to better the target and reach 85% -- as part of emergency measures to rebuild stocks ahead of the current winter.

Some went even further -- Germany imposed its own filling target requiring sites to be filled to 95% of capacity by the start of November.

These targets saw a buying spree to refill sites with EU-wide stocks reaching a peak of 95.6% of capacity by mid-November -- the equivalent of a little over 100 Bcm of gas -- according to Gas Infrastructure Europe data.

But it was partly that storage demand that helped keep European gas prices at eye-watering high levels this summer, with the cost of refilling stocks across the EU estimated at more than Eur50 billion, eight times the historical cost.

Europe was forced to turn to LNG in ever greater volumes to help fill storage, with Russian pipeline deliveries reduced to a trickle after supplies via the Yamal-Europe and Nord Stream were suspended, and exports via Ukraine cut.

ACER, the EU's energy regulatory body, said in a report in late November that refilling of storage stocks next summer could be compromised if more LNG is sent to Asia.

"If gas storages are fully depleted during winter 2022/2023 and/or not sufficiently replenished in summer 2023, Europe might face demand curtailments in winter 2023/2024," ACER said in a market report in late November.

"Factors like rising gas demand -- due to cold weather or unmet demand reduction targets -- fully halted Russian supplies, and larger volumes of LNG diverted to Asia are of concern," it said.

In particular, ACER warned of the impact on Europe that a rebound in China's LNG import growth would have following its COVID-driven demand decline this year.

In addition, Europe -- and Germany in particular -- benefited from near-normal Russian gas flows in the first half of 2022 which helped to fill storage sites in the second quarter before the Nord Stream cuts began in mid-June.

Germany will have to do without Russian gas to help in its filling efforts in 2023, but it will have its own direct LNG imports for the first time, with three FSRUs set to be operational from January.

Storage targets

Nonetheless, storage stocks remain healthy heading into 2023 with EU sites still 83% full as of Dec. 27, according to Gas Infrastructure Europe data.

Stocks even built counter-seasonally across parts of Europe in late December on mild weather and demand curtailments.

According to analysts at S&P Global Commodity Insights, Europe as a whole is expected to still have almost 50 Bcm of gas in storage come March 2023.

Stocks in continental northwest Europe are forecast to be 67% full at end-January and 54% full at end-February.

In November, the European Commission published the interim targets member states are required to meet in 2023. Targets are set for Feb. 1, May 1, July 1, and Sept. 1 ahead of a stricter Nov. 1 goal of 90% fullness.

For Feb. 1, they range from 30% full in Belgium to 70% full in Portugal, while for Sept. 1 they range from 60% full in the Czech Republic to 88% full in Romania.

Germany continues to set its own targets, with its next goal set at 40% fullness by Feb. 1.

The Netherlands, meanwhile, which has the EU's third-biggest storage capacity after Germany and Italy, will again offer incentives to help fill the major Bergermeer site.

State gas company EBN will again be asked to partially fill Bergermeer with 15-20 TWh of gas if the market fails to fill the site. Some Eur520.5 million will be set aside for EBN to make the gas purchases.

EBN will also be instructed to leave 7 TWh of gas stored in Bergermeer this year in place until the first quarter of 2024. "This way, more gas remains in stock and less needs to be refilled," the government said in mid-December.

In addition, a subsidy measure is being explored for Bergermeer that would hedge the risk of a negative spread for the filling parties.

Industry group GIE believes more action should be taken at the political level to ensure gas storage sites are filled next summer in view of uncertainties around supply.

"Given the uncertainty around next year, we need concrete policy actions to refill gas storages in view of the next heating season," Camille Bonenfant-Jeanneney, president of Gas Storage Europe (GSE), GIE's storage arm, said in November.