Cold weather in Europe has increased the use of natural gas to regulate temperatures, causing the region’s natural gas reserves to decline at their fastest rate since 2018. According to data from Gas Infrastructure Europe, storage facilities are currently 70 percent, down from about 86 percent at the same time a year ago.
Gas reserves are currently down 25 percent from last year’s peak, the biggest decline in seven years, according to OilPrice.com.
“The lower the inventory levels are by the end of March, the harder it will be to replenish them before next winter. Current forecasts suggest temperatures could drop below average. That will make the challenge even greater,” said Samantha Dart, head of natural gas research at Goldman Sachs Group Inc.
However, despite the increase in demand for gas, there was no immediate shortage in supply. This has led to a slight decrease in the price of the fuel. Last Monday, the price of natural gas fell to 47.90 euros per megawatt-hour in the European futures market. The price had risen by 3.8 percent the previous week.
Europe is increasingly relying on liquefied natural gas (LNG) from other countries of the world as an alternative to gas imported through pipelines from Russia. This has increased the risk of instability in the market. In addition, the closure of Norway’s Hammerfest LNG plant due to mechanical problems may intensify market instability.
Meanwhile, Russian gas supplies via pipelines through Ukraine were cut off on New Year’s Day, ending Moscow’s dominance of Europe’s energy market. Russian gas company Gazprom said it decided to cut off gas supplies after Ukraine refused to renew a new transit contract.
This will cost Gazprom about $5 billion in lost revenue from gas sales. 5 percent of the European Union’s (EU) total gas imports are delivered via pipelines through Ukrainian territory. And Ukraine will lose up to $1 billion a year in transit fees if the transit agreement is not renewed. To make up for this shortfall, they plan to increase domestic gas transmission tariffs fourfold.
Energy experts had previously warned that Austria, Hungary and Slovakia would be the worst hit by the Russian gas cut. Slovakia has already secured supplies from alternative sources. Azerbaijan’s state oil company, SOCAR, has started supplying natural gas to Slovakia’s largest state energy operator, SPP.
Meanwhile, analysts say the United States is set to be the biggest beneficiary of the situation in Europe. The United States and Norway have overtaken Russia as Europe’s largest suppliers of natural gas. Last year, Norway supplied 87.8 billion cubic meters of gas to Europe, accounting for 30.3 percent of the region’s total imports. The United States, on the other hand, supplied 56.2 billion cubic meters, accounting for 19.4 percent of total imports.
The United States is also Europe’s largest LNG supplier. Last year, it supplied almost half of Europe’s total LNG imports, marking the third consecutive year that it has exported more to Europe than any other country.
The United States supplied 27 percent (2.4 billion cubic feet per day) of Europe’s total LNG imports in 2021, 44 percent (6.5 billion cubic feet per day) in 2022, and 48 percent (7.1 billion cubic feet) in 2023.
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