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On July 31, Gas Infrastructure Europe (GIE), the association of European gas operators, reported that underground gas storage facilities in Europe were filled to 85% of their maximum capacity. In other words, Europe has managed to extract more than 93 billion cubic meters of natural gas in recent months. Just another modest 5 percent are needed in order to go into the 2023-2024 winter season “trouble-free.” Experts from the GIE Association believe that “at the current pace of replenishing gas storages, the 90% plan would be achieved by the end of August.”
According to analysts who do not take anything lightly, the weak point of the entire European energy procurement program will be “the ability to maintain the pace” at which the blue fuel was loaded into warehouses in recent months.
In July, European imports of liquefied natural gas (LNG) fell to their lowest level in 20 months. The countries of the Old Continent imported 8.6 million tons of LNG. The year-on-year decline was 7 percent.
In the first three days of August, gas futures prices for September delivery at the TTF hub in Amsterdam were $315-319 per thousand cubic meters, which is slightly below the average prices of recent months and 80% lower than a year ago.
This situation is based on the maximum gas reserves accumulated by Europe in storage facilities: 93 billion cubic meters is really a lot, and there is very little left to reach the 90% goal; as a result, gas prices are falling, forcing traders to halt offshore LNG tankers or divert fuel ships to Asian countries that, contrary to some expectations, are not yet demonstrating any “explosive” growth in demand for LNG.
All this allows Europe to look confidently into the future, but up to a certain point. The most disturbing factor is the acute shortage of LNG tankers: according to Spark Commodities, shipping rates for autumn of 2023 have already exceeded the “psychological” target of $200,000 per day, which is twice the sea freight volume during the summer period. More specifically, next October, one day of LNG tanker charter will cost traders $206,750, rising to $284,750 in November. If prices remain at such a high level until the end of the year – a more than likely hypothesis for many analysts – European countries will have to face a situation more or less similar to last year’s, when blown-up LNG prices were “supported” by almost prohibitive transport tariffs.
For Spark Commodities, the growing shortage of affordable LNG tankers will be attributed in part to the behavior of traders who currently use ships not for carrying LNG, but as “floating storages,” anticipating a price spike between autumn and winter of 2023-2024. According to Bloomberg, from the end of July to the first days of August, the number of tankers loaded with LNG and anchored at sea for more than 20 days reached 42 units, which is +27% compared to the situation in the corresponding period of 2022. Richard Pratt, LNG market expert at RNB Energy, estimates that “the trend of owning significant offshore gas reserves will continue until at least October.”
At the moment, gas prices in Europe are low, and the energy situation in the Old Continent looks much more stable than a year ago. However, the chairman of BP Plc. Bernard Looney said it’s too early to rest on laurels. “Everything will depend on the pace of recovery in demand for (gas) and on the weather in Europe during the winter,” Looney summed up his main concerns in an interview with Bloomberg Television.
Finally, there are those in Europe who still do not trust stable LNG supplies and rely on Russian natural gas. This is primarily Austria that, unlike other European countries, continues to import significant volumes of Russian gas. Prior to the conflict in Ukraine, Austria imported 80% of its gas from Russia. Austrian imports have declined in 2022, but not drastically. According to The New York Times, “in March 2023, Austria again purchased 74% of all gas from Russia.”
Germany that used to import 50% of its gas from Russia in the past is no longer receiving it, according to the NYT. Countries such as Poland, Bulgaria, and the Czech Republic have halved their purchases of Russian gas. Italy plans to completely phase out Russian gas before the end of this year. And Vienna that has paid Russia $7 billion for gas over the past 15 months has declared that it won’t be able to do the same before 2027-2028.
