The overall energy situation in Europe appears to be stabilizing as the continent should have enough gas stores to make it through the rest of the winter season without cuts to power or heating supplies. Gas storage levels throughout Europe remain higher than usual on the back of warmer winter temperatures and cuts to gas consumption while increased energy output from alternative fuel sources have also helped boost regional energy supplies.
Similarly, wholesale gas prices have also fallen close to levels not seen since the start of the Russia-Ukraine war in February 2022.
Production outlook remains muted despite falling gas prices
Companies across the continent continue to experience production disruptions despite declining energy demand as current gas prices remain four times higher than the last decade’s average. Additionally, contracts for electricity and gas on European power markets are often purchased weeks or even months in advance, meaning that it could take several months before households and industrial users begin benefiting from the decline in gas prices.
A survey of manufacturing industry leaders revealed that around 70% of manufacturers expect their energy costs to continue increasing in 2023, with nearly 66% indicating that they were prepared to cut production output and jobs. Notably, energy prices for industrial users in the UK could increase even further from April onwards due to a change in the government’s mitigation measures. T
The proposed UK measure provides less financial support than the current aid package which capped gas and power prices until March 2023, raising concerns that more businesses could be forced to cut production due to the reduction in government aid.
At the industry level, metalworking companies across the continent continued to experience energy-related production disruptions in December. Several chemicals manufacturers also reported production disruptions in December.
Warmer temperatures slow demand for gas
The warmer Christmas season helped decrease gas usage across the continent, with the European Union’s overall gas levels declining by less than 1% over the holiday season. Romania and Hungary experienced the largest drops in gas storage levels. Several countries have been able to refill gas stores over the warmer winter period. In particular, the United Kingdom saw gas storage levels increase by around 31%, while Germany and Belgium also managed to increase stores by around 3.14% and 8.01% respectively since mid-December.
The UK has been able to refill a large amount of the country’s gas stores since December 17 due to a sharp rise in renewable energy output over the Christmas season.
As of January 7, gas storage levels in Germany are sitting at 91.1% capacity, nearly 42% higher than gas storage levels this time last year, while gas storage levels in France are also around 27% higher year-over-year compared to 2022. Germany and France have managed to sustain historically high storage levels due to widespread reductions in energy usage. France reduced electricity demand by around 8.7% in December.
Sharp declines in gas usage were seen amongst the Baltic countries of Lithuania, Estonia, and Latvia, where storage levels in the region’s only gas storage facility in Incukalns, Latvia are hovering at around 47%.