London — Continental Northwest European gas storage sites could be almost entirely full by the end of August and injections will have to fall "dramatically" later this summer to avoid sites hitting capacity and prices collapsing even further, according to S&P Global Platts Analytics.
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Storage sites across Europe are filling fast given record low spot prices and the market being in a steep contango, making storage plays particularly economic at present.
Speaking on a webinar Wednesday, Platts Analytics senior gas analyst Gilles Heyberger said the continental Northwest European storage surplus is expected to expand to above 6 Bcm based on recent supply and demand, before falling at the start of the third quarter.
"Injections need to drop dramatically to achieve this," Heyberger said.
"This injection pattern leads to storages being almost entirely full by the end of August, with very limited injections in September and slight withdrawals in October," he said.
Heyberger said, however, that there was downside risk to this view.
"A slightly looser balance would require injections that cannot be accommodated," he said, adding that as remaining storage space dwindled there would be an increase in prompt price volatility.
According to data from Gas Infrastructure Europe, gas storage sites have been filling quickly in April and May across all of Europe, with German stocks already 81.4% full as of May 19.
Germany already has a total of 184.7 TWh (17.5 Bcm) stored just one and a half months into the six-month injection season.
The strong injections come on the back of a significant storage overhang at the end of another mild winter following a strong storage build at the end of 2019 due to fears -- ultimately unfounded -- that Russian deliveries via Ukraine could have been disrupted at the start of 2020.
The storage situation is similar in other countries, with Austrian storage already 81.7% full and Spain 75% full, according to GIE.
Based on average injection rates over the past five Gas Years, storage sites could be full by mid-August.
Germany and Austria could see their storage sites fill to capacity first if injection rates match the average from the past five years, with some industry observers expecting them to be full as early as July.
They would likely be followed by the Netherlands, France, Hungary and the Czech Republic in late August.
Consultancy Poten & Partners in a recent webinar said storage sites could fill to capacity even by the end of July given high injection rates, a view echoed by the Oxford Institute for Energy Studies which said in a recent paper that it was "highly likely" that European storage facilities would reach full capacity by August, if not July.
The current seasonal spread is certainly incentivizing strong injections.
S&P Global Platts assessed the TTF Winter 2020 contract on Wednesday at Eur11.425/MWh, a premium of more than Eur7.50/MWh over the TTF day-ahead price of just Eur3.85/MWh.
However, some traders could though look to retain their European storage optionality and wait to see if prices fall even further later in the summer before injecting.
Gas analyst Gergely Molnar from the International Energy Agency told Platts Thursday that the current seasonal spreads certainly provided a "clear incentive for injections."
And with EU storage sites set to fill quickly, traders could look to the spare capacity in Ukrainian storage facilities to find a home for their gas.
"Once storage in the EU is getting saturated more interest could arise for storage space in Ukraine," Molnar said.
"Discounted transport tariffs and backhauling could further reduce the cost of using storage sites in Ukraine," he said.
The OIES also sees Ukraine as helping to balance the European gas market, saying that European shippers could inject 5-6 Bcm of gas into Ukrainian storage this summer.