After having to give up its dependence on Russian gas and find other suppliers to prepare for winter, German gas storage was 97.7% full on Thursday. European inventories are at 93.8%, well above the target of reaching 80% capacity before November.
Flushing storage facilities sent short-term European spot prices plummeting: Europe’s benchmark natural gas price fell to 93 euros per megawatt-hour on Tuesday, down more than 70% from its peak .
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At one point, the Dutch hourly price slipped into negative territory, meaning that with so little space left to store purchased gas, traders were briefly willing to pay someone to get rid of the gas. It marked an extraordinary moment for a continent whose energy market has been upended by Russia’s war in Ukraine.
But there are still plenty of reasons to be cautious, experts say, pointing out that the sharp declines in the spot market are essentially a seasonal anomaly that won’t bring consumers much respite. Prices are still expected to be around seven times higher than normal this winter. And some experts say particularly severe weather could still lead to supply shortages.
Heating is the main use of natural gas in European households. An unusually warm October meant people turned on their heaters less often. Combined with full storage tanks, this led to a moment of oversupply.
“It’s like filling up your refrigerator before a blizzard doesn’t come — or, more specifically in this case, is a little delayed,” said Dustin Meyer, vice president of natural gas markets at American Petroleum Institute. “So in the very short term, all you have to do is figure out what to do with all that food.”
But as the cold sets in, countries will start to dip into their stocks.
“Obviously there is still a gas crisis,” said Lion Hirth, professor of energy policy at the Hertie School in Berlin. “The fact that we have had a few very hot weeks doesn’t change that. These prices will recover as soon as we have the first cold days. »
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Germany’s gas regulator, the Federal Network Agency, stressed on Thursday that despite short-term fluctuations, “businesses and private consumers have to adjust to significantly higher gas prices.”
While lower spot market prices are a “good thing”, the changes “only affect consumers with a certain lag”, said Beate Baron, spokeswoman for Germany’s energy ministry.
“High prices will of course continue to be a burden,” she said, adding that consumers and industries must continue to save energy to avoid a supply shortage.
Gas-intensive industries are already struggling. German chemical giant BASF – whose factory on the Rhine River uses more gas than Switzerland – said this week it would permanently cut its workforce in Europe, citing rising energy prices which makes the region uncompetitive.
“In the first nine months of 2022, incremental costs for natural gas at BASF’s European sites amounted to approximately €2.2 billion compared to the same period in 2021,” the company said.
Industry-initiated usage reductions in response to prices have eased fears that the government will need to intervene. Hirth said he would not rule out a scenario in which the government would have to ration gas this winter, although he said he was more optimistic than he has been in the months that will not have to. occur.
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Europe managed to adapt to a complete cut in supplies via Nord Stream 1 – the largest gas pipeline between Russia and Europe, before it was destroyed in an apparent act of sabotage last month – by “essentially buying the entire market” of liquefied natural gas. gas, said Südekum, who also advises the Department of Energy. “We brought it all, at any cost, and now it’s paying off,” he said.
Europe’s rush to fill its gas stocks in time for winter, regardless of price, contributed to a price spike in August, Hirth said. “If you use a lot of tax money to buy gas on the market and store it, the price you pay is higher gas prices and crowding out of industry, and that’s essentially what the governments across Europe have done.”
Although Europe has been able to complete its supplies without Russia, it does not yet have the infrastructure in place to fully replace Russian gas.
“Even if storage is higher than it has been for the past five years, Europe will likely rely more on pulling gas from storage than it would in a normal winter. “, said Meyer. “Losing this gas pipeline from Russia remains a fundamental challenge. And this problem is still far from being solved.
Halper reported from Washington.