Time is running out: Europeans don't want to fill gas storage facilities
The Dutch gas transmission network operator Gasunie has stated that the country will not be able to meet the national target for filling underground gas storage facilities (UGS) by the beginning of the heating season. In general, UGS occupancy in the EU is significantly lower than historical figures and has not actually increased in recent weeks. It's too early to talk about some kind of disaster, but European consumers may have serious difficulties in winter, and prices may reach records. Details of the changes in the European gas market can be found in the Izvestia article.
Not prepared
The Netherlands occupies a special place on the EU energy map. Despite the relatively small volumes of its own consumption, the country acts as a key transit and trade hub. Last year, the region's largest economy, Germany, received more than 20% of all imported gas through the Dutch infrastructure.
To date, the Dutch UGS facilities are only 45% full, the minimum for the end of summer since 2009. The lag behind the average over the past five years (73%) looks threatening. The government's stated target of 115 TWh of reserves, designed to pass the coldest winter in the last 30 years, has been officially declared unattainable. The Gasunie operator has already sent a notification to the Ministry of Climate and Green Growth stating that without additional administrative initiatives, the country will not be ready for severe weather conditions.
The situation in the Netherlands reflects the overall picture on the continent. The average UGS occupancy rate in the European Union stood at 63%, critically lagging behind the guideline of 80% by November 1. In Germany, reserves are also at multi-year seasonal lows, which has already caused alarming statements from the Federal Grid Agency about the thinning of the buffer against a price shock.
The only exceptions are a few countries, among which Italy stands out, whose storage facilities are 82% full. However, this result was achieved not through market mechanisms, but through large-scale government intervention, which introduced special subsidy and guarantee tools for pumping companies.
Profitability barrier
The redundancy crisis is caused by the specifics of the gas market. The storage facilities are filled not by government agencies, but by private traders and energy concerns. The economic sense of pumping occurs when gas is significantly cheaper in summer than futures contracts for winter supply. The price difference should cover the cost of renting UGS facilities, transportation fees, and the cost of borrowed capital.
But now the situation is different. The blocking of the Strait of Hormuz and the withdrawal of a significant portion of Qatari LNG from global circulation have inflated current spot prices in Europe. Traders refuse to buy an expensive resource now, freezing working capital for several months with the risk of making a loss in winter. Importers have taken a wait-and-see attitude, hoping for a decline in quotations in the autumn. Asian buyers, meanwhile, are much less scrupulous.
In its latest report, Goldman Sachs calculated that in order to overcome the resistance of traders and make pumping into European storage facilities commercially justified in the face of global shortages, spot prices should reach the level of $1,000 per 1,000 cubic meters. Only such a price shock can forcibly redirect LNG shipments from Asia to Europe and force companies to build up reserves.
The tranquility of Brussels
Against the background of the alarming statements from The Hague and Berlin, the reaction of the European Commission looks emphatically restrained. Brussels officials do not see the current situation as a critical threat to the union's energy security.
The reason for this calmness is consumption statistics. The decrease in UGS injection volumes is partly offset by a general drop in gas demand in Europe. This reduction is provided not so much by energy efficiency programs as by shutting down the real sector of the economy. Chemical plants, fertilizer producers, and steel mills that cannot compete with current tariffs for electricity and raw materials are massively reducing output or completely closing workshops.
The European Commission bases its calculations on the assumption that the compression of industrial demand will make it possible to pass the winter even with half-empty storage facilities. This is a rather risky bet, which makes the reliability of the energy system dependent on the further deindustrialization of the continent.
The expectation that Europe will be able to quickly purchase the missing volumes on the spot market at a critical moment rests on the limited capabilities of suppliers. The situation around the Strait of Hormuz remains unstable. Despite the declarations of truces, insurance risks and regular incidents keep commercial traffic at levels far from pre-war levels. Due to instability in the Red Sea, part of the global fleet of gas carriers still uses bypass routes around Africa, which lengthens flights and creates a shortage of tonnage.
The United States, which became the "supplier of last resort" in the 2020s, is operating at the limit of its export capacity. There is an abundance of gas in the country, but the plants on the Gulf coast are fully loaded. American manufacturers will not be able to increase supplies beyond current contracts quickly. In addition, the growth in exports has already led to higher domestic gas prices in the United States. Ahead of the fall elections, the administration in Washington is under pressure from the industry lobby to restrict exports to protect the American consumer. Brussels does not have to rely on emergency assistance from overseas.
Apart from the United States, the only major source of free volumes available to Europe (taking into account the short logistical leverage) remains the Russian Yamal LNG project, purchases from which are already hitting historical highs.
Winter is coming
Of course, failure to implement plans for UGS does not mean automatic freezing of cities, but it leaves the system completely defenseless against unforeseen factors. If the upcoming winter turns out to be mild, the European energy system will be able to keep the balance. Prices will remain high, the industry will continue to stagnate, but blackouts will be avoided.
In the event of prolonged cold weather, a low stock level can play a very unpleasant role. When the volume of gas in the storage decreases, the intra-reservoir pressure decreases, which causes the stem to lose its ability to produce large volumes of fuel per day. When consumption increases sharply due to frosts, it will be technologically impossible to extract the necessary cubic meters from the UGS at the right speed.
In this case, emergency response measures will have to be introduced, for example, rationing energy. The mechanism involves forcibly disconnecting large commercial and industrial consumers from gas supply in order to maintain pressure in the networks for households and critical infrastructure (hospitals, bakeries). This will be a very sad prospect for the economy, with massive losses and even a surge in unemployment. Enterprises will receive orders to stop the conveyors, which will lead to a supply crisis.
By refusing to purchase gas for $700 in the summer due to their commercial inexpediency, Europeans risk paying for the downtime of entire sectors of the economy in the winter, which will cost national budgets many times more.
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