Europe has nine weeks of natural gas storage reserves at the current rate of withdrawal, with nine weeks of the winter delivery period remaining, an analysis by S&P Global Platts found, even amid the deluge of LNG being received.
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With Russian exports to Europe's key trading hubs still constrained year on year, there is an emerging risk of localized supply issues and regionalized price spikes later in the winter which could spread to other parts of the continent.
According to data from Platts Analytics and Gas Infrastructure Europe, inventory at Platts-assessed markets totaled 36.99 billion cu m on Jan. 23, with net withdrawal in the Jan. 17-23 period amounting to 3.95 Bcm.
In terms of individual countries, Austria, Germany and the UK were among the most susceptible countries and could potentially see reserves fully depleted before the end of winter. The UK has just five weeks of inventory left if current withdrawal rates are sustained.
Moreover, a comparison of the latest stock level against the drawdown of previous balance-of-winter periods showed Austria in particular would run out of inventory should last winter be repeated. That is even before lower Russian exports to Europe are taken into account.
By the same measure, Germany would have enough in reserve if the balance-of-winter for the past two years was replicated, but without supply from the Yamal pipeline, it too is at risk of exhausting its stocks.
All-in-all, Europe would have 13.45 Bcm in storage by March 31 should last winter be repeated. As things stand, that would be reduced to 4.43 Bcm when missing Russian exports this year are considered.
January-to-date, the Yamal pipeline terminating in Germany has been in reverse-flow mode and has experienced an average swing of 95.94 million cu m/d year on year. Also, exports via Ukraine to Slovakia at Velke Kapusany have been 38.65 million cu m/d lower on average on the year.
In the totality of winter, Europe withdraw 68.1 Bcm during Winter 2020 delivery, which if repeated this year would leave 10.1 Bcm in stock by March 31.
With traders fully aware of the situation with Russian exports for some time, extensive efforts to replenish stock over the summer have been followed up by careful management of inventory during the winter.
The analysis found that while the Netherlands would be at risk of full drawdown if last year was repeated, it has 13 weeks of reserves left at the most recent rate of withdrawal.
Such a shift in management can be down to tactically injecting or reducing withdrawals at the most opportune times to maximize inventory.
That is preferable at times of comparatively low demand or low prices and could in part explain volatility on the spot market as shippers would need a strong incentive to unwind an already profitable withdrawal profile.
Indeed, such a system could arguably be in place within Russia as well and could serve as a possible explanation for lower exports should it be seeking to keep domestic storage fully-topped up. Russia has filled just a fraction of its space in European storage this year, however.
France and Italy, who both legislate for gas storage regulation, should both have a weeks' worth of aggregate demand in reserve by the end of winter despite high French net withdrawals at present and Italy's partial exposure to lower Russian exports.
The UK has relatively tiny storage space compared to its annual gas demand and is more accustomed to managing stocks in such a way. The majority of the 1.5 Bcm space it has is owned by utilities who would not need to enter the spot market to replenish.
However, the lack of strategic reserves in the UK was a key contributing factor to the former spot price record set by the 'Beast from the East' weather system on March 1, 2018. While originating in the UK, an acute need to source imports from, or at the expense of, other countries spiked neighboring hub prices too.
While the analysis found the UK could have enough stock by March 31 should previous winters be repeated, it did not rule out a full depletion before this time.
Weather or not?
Many market participants have argued that a comparatively mild winter, such as experienced this year, would be enough to prevent inventory being fully depleted.
The analysis showed, however, that historically this could only account for 3.825 Bcm in the Jan. 23 to March 31 period, for around 24-25 Bcm over the entirety of winter delivery, and the effect of lower Russian exports to Europe may not be fully offset in either case.
Therefore, whether full drawdown occurs and price spikes ensue is likely to depend on where countries in need source gas from, and at what expense.
For all its connectivity as Europe's benchmark, the TTF could be under enormous strain should problems develop in Germany, Austria or the UK, and the rest of Europe is likely to feel it.