The European gas surplus is almost gone: Kemp

The record European gas surplus that was inherited in winter 2023/24 is now largely gone, thanks to a very small accumulation of stocks so far this summer 2024.

Gas Infrastructure Europe (GIE) data shows that inventories in the European Union and United Kingdom are up just 336 Terawatt Hours (TWh).

The accumulation is the lowest since 2012, and compares to a 10-year average of 443 TWh (Aggregated Gas Storage Inventory", GIE. August 14).

On Aug. 12, stocks were still 170 tWh (+20% or +1.46 standard errors) above the average for the past 10 years, but the surplus was down from 277 tWh (plus 70% or +2.03 standards deviations) on the last day of winter in March.

Stocks had to be accumulated more slowly than normal due to the record-breaking carryout of last winter. This was to avoid storage space being exhausted before winter 2024/25. The adjustment has now been completed.

EU and UK inventories were 1,006 TWh at the end of August, slightly less than 1,024 TWh in the same period last year. Storage facilities were only 88% full as opposed to 89% by 2023.

The storage season in Europe is nearing the halfway point. Stocks have been increasing for 134 consecutive days since March 31 compared to an average of 209 days for the refill season over the past 10 years.

Storage peaks typically around October 27, but the amount of storage can vary greatly depending on temperatures in autumn and gas prices.

GIE data shows that since 2011, pre-winter inventory peaked at the earliest Oct. 9 in 2016 or as late as November 13 in 2022.

According to patterns from the past decade, storage will reach 1,173 TWh by late October or early Novembre, before winter depletion starts.

The peak projected has dropped from 1,280 TWh to 1,149 TWh, which is just slightly higher than the technical capacity.

Due to this, the risk of running out of storage space before the summer ends is almost gone, and both spot gas prices as well as calendar spreads have risen from their relatively low levels early in the year.

The average price of Dutch TTF front-month futures, adjusted for inflation, has been 38 euros per Megawatt-hour (MWh), so far in August. This is up from 26 euro (42nd percentile in all months since 2010).

The average contango for the October and November 2024 futures contracts, which cover the peak storage period of the year, has been 2 euros in August. This is the lowest discount since 2023.

The decreasing contango/discount indicates less need to delay LNG imports until the winter drawdown starts and less need for generators to burn additional fuel to ensure that space is not running out in the interim.

Investors and traders have likely anticipated the rebound in prices for the front month, and it was accelerated. Some analysts are now questioning whether this has already happened.

Prices are unlikely to fall to their lows in February and March, unless this winter is very milder than usual for the third consecutive year.

John Kemp is an analyst of the market. His views are his. Follow his commentary on X https://twitter.com/JKempEnergy (Editing by David Evans)

(source: Reuters)