Europe now has a huge stockpile of natural gas amid a mild winter

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Europe managed to avoid an energy crisis thanks to a mild winter. But countries in the region built up reserves of natural gas last year over fears of a shortage. Storage facilities are now at their highest level in years, but natural gas prices have fallen. Something is loading.

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Europe was lucky – it managed to avoid an energy crisis, all thanks to a warm winter.

But he has another problem. Countries in the region have stockpiled so much natural gas at higher prices that it is now stuck with stocks of fuel whose market value has depreciated.

For example, benchmark Dutch natural gas futures have fallen nearly 28% this year so far to around 53 euros, or $57, per megawatt hour. Dutch natural gas futures are also 85% below August’s record high of €349 per megawatt hour.

The price spike had been prompted by fears that Europe would be caught in a brutal winter as Russia – a key supplier – continued to cut off pipeline gas flows to the continent in retaliation for Western sanctions following the invasion of Ukraine.

Concerns had caused Europe to scramble to import liquefied natural gas from other countries and fill its storage facilities.

But the harsh winter it was fully prepared for didn’t come – Europe experienced its third-warmest January in 2023, with average temperatures 2.2 degrees Celsius, or 35.96 degrees Fahrenheit higher. average between 1991 and 2020, according to the EU’s Copernicus climate change service.

This meant that European countries did not need to increase heating as much. And as a result, its regional natural gas stocks — which are at about 65% capacity on average — are at their highest levels in years, according to a analysis of Gas Infrastructure Europe data released on Monday.

While high storage levels allay concerns about an energy crisis in Europe, particularly since Russian gas supplies to the EU fell to historic lows at the end of 2022, it also means that any sales of stocks in the spot market will now be at a loss. Any loss could affect the coffers of European states and could be borne by taxpayers.

“If buyers haven’t covered the volumes they stockpiled last summer, they will try to keep that gas in storage until prices rise potentially next winter or later in the future,” BloombergNEF analyst Stefan Ulrich said in the news outlet’s Monday report. . “It seems unlikely buyers will be able to recoup their full purchase costs unless the market tightens significantly,” he added.

The International Energy Agency, however, had an optimistic view of things when it said in a November 2022 report: “it is never too early to prepare for next winter”.

The European Central Bank, or ECB, also warned in its bulletin that current higher-than-expected natural gas inventories could run out faster than expected if the mercury drops sharply or there is a prolonged cold snap in coming months, leaving EU gas markets in a “more vulnerable position”.

It’s not just winter, the summer season could also be a problem. “High temperatures during the summer months would increase the demand for gas for power generation due to an increased need for air conditioning,” ECB economists warned.

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