The overall energy situation in Europe remains stable despite a 17% decline in the continent’s gas stores due to periods of cold January weather. This drop in gas storage levels has not been a cause for concern as the EU remains on track to end the winter season with gas supplies just a few points shy of the 2022-23 winter season record of 59%.
Gas prices have remained subdued over the past month at around €30/MWh despite the recent cold snap and an announcement by the U.S. about freezing approvals for new LNG projects in the country. The ongoing crisis in the Red Sea has had minimal impact on energy prices despite 13% of the continent’s LNG supply coming from vessels that transited the waterway. The stability of European gas prices indicates that there are likely sufficient gas storage levels and LNG supply remaining in the global market to offset disruptions caused by the Red Sea attacks.
Gas storage data indicates that all of Europe’s major economies will have sufficient storage levels to last the winter season even if gas usage rates remain high similar to those in January’s cold snap.
Germany’s gas situation remains the most stable in Europe with its 74% fill rate theoretically able to supply another 152 days of gas at the high usage rates that were seen in January. Both France and the UK have 75-76 days of gas storage available to them at January’s usage rates; enough to last beyond the end of the winter season. Gas stores are likely to last significantly longer when average temperatures begin to rise with the end of the winter season.
The stable gas supply situation has done little to improve energy intensive industrial activity in the EU this year. Consumption data indicates that overall gas demand across Europe in January was still around 14% below the five-year average. Glass, metals, chemicals and other energy intensive manufacturers will likely continue production cuts into 2024, and overall industrial activity in Europe is expected to remain low due to decreased demand and elevated prices for energy and gas contracts.
Businesses could also face increased costs for gas and LNG purchases after the EU introduced a mechanism in January that will fine ships and LNG vessels for greenhouse gas emissions. The system is expected to cover all ships docking in the EU by 2026 and could raise the daily costs of LNG shipments by as much as 5%.
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