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Spring energy outlook remains uncertain

European gas prices continue to remain below €50/MWh ($48/MWh) during the first week of March. Lower gas prices have been aided by the EU’s gas reduction targets, which cut average gas consumption by 19.3% between August 2022 and January 2023, compared to the same period between 2017 and 2022.

Despite above-average gas savings, the EU is expected to extend its 15% gas savings target beyond the end of March to allow the continent to reach 90% gas storage levels by November 1. The proposal is strongly supported by German officials, who have hinted that the country could maintain its 20% gas reduction target heading into next winter.

The bloc has also begun implementing measures to facilitate joint gas purchases between member states. The measure is expected to be ready by the summer of 2023 and will require EU states to list 15% of their planned gas purchases on a joint platform which will allow energy buyers to coordinate energy purchases.

High energy prices continue to pressure manufacturers

European manufacturers still struggle with production disruptions as energy prices remain at least two times higher than the average prices of around €20/MWh seen from 2010-2020. Textile manufacturers are also considering downscaling operations in Europe as energy prices remain around six times higher than in competing garment manufacturing hubs in the U.S., China, or other parts of Asia.

Gas stores still high but outlook remains uncertain for rest of 2023

Gas usage cuts and warm winter weather helped keep the continent’s gas stores filled, which remain at an all-time high of 59.24% as of March 4. As a result, the EU is on track to end the winter season with stores at least half full, well above the previous record of 47% achieved in 2014.

Alternate energy output in the region could also be disrupted by an ongoing winter drought that is impacting the continent due to the lack of winter precipitation. For example, French energy providers warned that a lack of rainfall has decreased the nation’s hydropower output and could curb the amount of water available to cool nuclear reactors. Similarly, Italian authorities revealed that hydroelectric basins relying on the Po River and other major waterways are experiencing difficulties due to low water levels. The drought has also begun limiting barge capacity along the Rhine River, where water levels at the critical Kaub gauge currently stand far below the seasonal average. Energy output in Germany could be threatened if river levels continue falling as barges are essential to the transport of fuel and other oil products for power stations along the river.

Late season surge in heating demand expected

This winter has been unseasonably warm, registering the third lowest heating demand days since 2000. However, the continent is expected to experience colder-than-normal temperatures heading into March due to an increasingly unstable Polar Vortex, which could result in heating demand rising to above normal levels in early March. Overall, much of Europe will see normal to colder than normal temperatures during the next two weeks, possibly producing a late season surge in energy demand.

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