ICIS ANALYST VIEW: Filling Europe’s gas storage in 2023 may be as tough as last year

Alex Froley

13-Feb-2023

LONDON (ICIS)–Refilling Europe’s vast onshore gas storage facilities this summer could be as tough a challenge as last year, requiring large volumes of LNG to be bought from the global gas market, according to analysis by ICIS.

But the good news is that the region should have more than enough import capacity to meet the challenge. And it no longer looks to be a much harder task in 2023 than it was in 2022, as had been the expectation just a few months ago.

MILD WINTER REDUCED DEMAND

Towards the end of last year Europe’s gas supply situation for the winter of 2022/23 started to look more comfortable. European countries exceeded their government-mandated storage targets to be 80% full by the start of November. Then the weather at the start of winter was reasonably mild. This reduced consumption, along with energy saving changes adopted by consumers in reaction to both high prices and public awareness.

The focus of attention started to shift at this point to the winter of 2023/24. Analysts and public bodies warned that even if Europe made it through the immediate winter, the one after could be much harder. The reason for this was that up until September 2022, Europe had still been receiving a lot of pipeline gas from Russia.

Even though volumes were falling, Russian flows had made a substantial contribution to Europe’s security of supply in 2022. But after a dramatic fall from September onwards, Europe could no longer count on a similar contribution to refill its stocks in summer 2023.

That suggested that Europe might face a much tougher challenge in summer 2023 than in summer 2022, needing to pull in even more LNG than the year before.

Fortunately, new import facilities were being built to provide capacity to pull in more LNG. In September 2022, Eemshaven in the Netherlands was opened, while in Germany facilities opened at Wilhelmshaven in December 2022 and Lubmin in January 2023. But the looming problem on the horizon was that there might not necessarily be much more LNG available in the global market to supply those terminals, given a slowdown in liquefaction additions worldwide and a bounce back in Asian demand.

As more months passed, however, winter has remained reasonably mild, capping storages withdrawals. Europe has continued to see reduced demand while strong LNG inflows prevailed to meet peak heating demand. And by the start of February 2023, Europe’s storage sites are, unexpectedly, at near record high levels for this time of the year.

Those high storage levels may help to offset the impact of reduced Russian pipeline gas, meaning that although Europe still needs to buy a lot of LNG in summer 2023, it doesn’t need any more than last year.

FORECASTING THE SUPPLY/DEMAND BALANCE

ICIS Gas Analytics through the Gas Foresight platform collates supply and demand data for the European gas market and regularly models the impact of various scenarios.

Our latest forecasts suggest that Europe (excluding Turkey) may receive some 43 billion cubic metres (bcm) less Russian pipeline gas during January to September 2023, than the year before. These nine months cover the period until the start of the next gas winter in October 2023.

The reduction is based on a comparison of greatly reduced Russian flow rates over the last few months compared with those recorded during January-September 2022. Russia has stopped supplying Europe with pipeline gas through the now-damaged Nord Stream line through the Baltic, and through the Yamal line through Poland, but continues some limited flows via Ukraine to Slovakia and through the TurkStream pipeline to southeast Europe.

Having analysed Norway’s planned maintenance schedules for the year, we also predict a potential 4bcm reduction in Norwegian flows to Europe compared with the same period of 2022. Remaining pipeline inflows are assumed to remain broadly steady.

Against this 47bcm loss of pipeline supply, Europe enters the period with some 32bcm more gas already in storage thanks to the current mild winter. This puts Europe only a net 15bcm behind last year’s position. But if Europe can make 15% savings to its gas demand relative to 2017-2021-year average – which means 10% savings compared to same period in 2022 – this could reduce requirements a further 31bcm. In this scenario Europe would actually be able to make it through summer needing some 17bcm less LNG than during January to September last year.

We have also modelled a scenario where Europe is less successful in cutting its gas demand, with only 5% savings compared to 2017-2021-year average – being only 2% savings compared to same period in 2022. In this case we see that there is only a 5bcm gain from reduced demand, rather than the 31bcm gain in our previous scenario.

When we add in the impact of Russia, Norway and higher storage levels, Europe now needs 10bcm more LNG than last year.

During our reference period of January-September last year Europe pulled in some 105bcm of LNG, when measured as send out to the grid. According to our latest forecast, the region looks set to need a similar level of LNG across summer this year. It may need a little less LNG than last year if consumers continue to make strong demand savings. It may need a little more LNG than last year if savings are not so high. If the weather is unusually mild or unusually cold over the final months of winter, this could also adjust requirements.

CAPACITY SUFFICIENT, LNG GROWTH SLOW

Europe certainly has sufficient LNG import capacity to receive the same amount of LNG as last year and would be able to cover the increases in our higher-LNG scenario, given that there are already three more terminals than last year, with a fourth, Brunsbuettel in Germany, is expected to start operations in February 2023. There are yet more terminals due later in the year.

Bringing in the same amount of LNG as last year will still require a competitive position in the global gas market, however. Europe has limited long-term supplies of LNG under contract, so the region’s buyers will need to continue to pay high prices to attract cargoes away from Asian buyers.

There’s little new production coming into the global LNG market this year, apart from BP’s Tortue project off Senegal and BP’s Tangguh train three in Indonesia, both scheduled for the end of the year. The return of the 15mtpa US Freeport plant, which has been out of action since a fire in June last year, should also help, although on a year-on-year comparison this wouldn’t be a net gain for the first half of the year.

Prices may not need to spike quite as high as they did in summer last year when Russian pipeline supplies suddenly stopped. But continued high prices above pre-crisis levels may be required to continue to incentivize demand savings and for Europe to pull in enough LNG for its needs.

Additional reporting by Paula Di Mattia Peraire

For more information on Gas Foresight please email gas-analytics@icis.com

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