The overall gas storage situation in Europe continues to remain positive with gas stores currently at more than 99% of full capacity as of November 1. This far exceeds the initial target of reaching 90% of storage capacity by November. This did not, however, stop October price hikes. European gas prices hit their highest point since March in mid-October as supply fears driven by strikes in Australia, a pipeline leak in Finland, and production disruptions in Israel caused gas prices to jump to over €53 per megawatt hour.
News of suspected sabotage on a pipeline between Finland and Estonia caused prices to soar more than 20% the week of October 10, reviving fears over the security of Europe’s energy infrastructure. Repairs on Finland’s Balticconnector pipeline are expected to last until at least next April. However, even if the pipeline remains inoperable this winter, shortages are not anticipated, with both Finland and Estonia continuing to receive gas from other sources.
The conflict in Israel also resulted in gas price volatility in mid-October. The Government of Israel ordered Chevron Corp. to halt operations at the Tamar offshore gas platform on October 9 due to the conflict. The Tamar platform accounts for about half of Israel’s yearly gas production. One third of Israel’s gas is exported to Egypt and then on to the global market, so the production halt in Israel poses a threat to Egypt’s liquefied natural gas (LNG) exports to Europe going forward. In 2022, Egypt delivered nearly 5 percent of the EU’s gas.
Meanwhile, another regional supply threat that has been resolved, after causing market volatility through September and October, were the intermittent strikes at Chevron’s LNG facilities in Australia. The strikes ended in late October with a final agreement.
European gas store levels exceed 99% of storage capacity
Looking further ahead, the Government of Ukraine has indicated that it is not willing to negotiate a new gas transit agreement with Russia once the current deal expires, which would further reduce Russian pipeline gas supplies to the EU by the end of 2024. The EU plans to wean itself off Russian fossil fuels by 2027. Pipeline gas imports from Russia have already dropped.
Another recent development has been the agreement reached by energy ministers of EU member state countries on reforming the EU electricity market. A dispute between France and Germany has been resolved with a deal for state funding of nuclear power capacity. German authorities had been wary to approve this over concerns that the state funding could lead to unfair competition in the market. The reform also included electricity price protections, ensuring that European customers pay the average production price for their electricity supply. The agreement now goes to the EU Parliament.
On a country level, recent energy supply related deals include Italian energy company Eni signing a 27-year LNG agreement with QatarEnergy, that will see delivery to Italy beginning in 2026. Germany is also working on securing its future energy supply, with new storage installations coming online in November and December set to double LNG storage capacity by the end of 2023.
Mild winter in Europe forecast
Over the past several decades, Europe has experienced a consistent trend of milder winters, with the last colder than average winter occurring in 2012-13. This warming trend in European winters has been attributed to the increasing warmth of ocean waters. Global ocean temperatures have registered the warmest in recorded history during the past six months and look to stay that way going into winter. Specifically in Europe and its surrounding areas, ocean warmth is unusually widespread.
The upcoming winter’s weather pattern will be influenced by two primary factors: El Niño and the Polar Vortex (PV). El Niño, characterized by warmer than normal sea surface temperatures in the equatorial Pacific Ocean, plays a significant role in shaping global weather patterns. However, when it comes to Europe, the connection between El Niño and temperatures is complex. Strong El Niño events have resulted in both warm and cold winters for Europe in the past, leaving this indicator mixed.
The variation in winter temperatures during El Niño events can be attributed to the PV, another critical factor. The winter PV exists in two states: stable and unstable. Warmer than normal temperatures in Europe are typically associated with stable states, while colder than normal temperatures are linked to unstable states. As we enter the early winter season, specifically November and December, the PV is anticipated to be stronger than usual and more stable, signaling warmer conditions. Furthermore, during stronger El Niño events, the PV tends to maintain its stability throughout much of the winter.
Overall, another mild winter for Europe is likely based on the warm ocean waters, an anticipated stable PV, El Nino conditions, and trend. The magnitude of warmth will be dictated by the PV during the winter. As a result of the warmer winter, heating demand this winter will likely be less than normal as well.
Everstream clients are receiving more detailed insights and recommendations about this risk.
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