Northwest Europe has experienced much warmer than normal temperatures since early October, delaying the onset of the heating season and ensuring gas storage is near maximum levels ahead of the winter.
Benchmark gas futures prices for nearby months have already slumped as storage space starts to run out, while inventories continue to accumulate at unusually fast rates for the time of year.
The maturing futures contract for deliveries in November has fallen to around €100 per megawatt-hour, from €200 at the start of September.
Calendar spreads from November through January have shifted into contango as inventories are expected to be plentiful in the first part of winter.
Temperatures across northwest Europe fell faster than normal in the second half of September, an early end to the summer and chilly start to autumn.
Since then, however, temperatures have been broadly stable or risen slightly, making the weather much milder than usual.
By Oct. 4, Frankfurt had experienced 79 heating degree days compared with a long-term seasonal average of only 33.
By Oct. 24, however, the number of heating degree days (125) had fallen slightly below the long-term average (132).
MAXIMUM STORAGE
The combination of mild temperatures and exceptionally high prices has ensured gas storage has continued to fill for longer and at a faster rate than usual.
By Oct. 24, storage in the European Union and the United Kingdom (EU28) had reached 1,055 terawatt-hours (TWh), the third-highest seasonal level on record.
Inventories are now 128 TWh (14% or 1.20 standard deviations) above the 10-year seasonal average for 2012-2021 (“Aggregated gas storage inventory”, Gas Infrastructure Europe, Oct. 26).
This year’s storage refill has been the fastest ever, as the region has paid any price to amass inventories and protect itself from a possible disruption of pipeline supplies from Russia.
The refill is also continuing much later into the autumn than usual. In the seven days to Oct. 24, inventories climbed at a record rate of 1.8 TWh per day, at a time when storage has often peaked in previous years.
As a result, EU28 storage has reached 93.6% of its maximum capacity, the third-highest on record, and is set to rise even further.
Temperatures in northwest Europe are predicted to remain at or above normal between November and January according to the European Centre for Medium-Range Weather Forecasts.
If that proves correct, the refill season will continue into early November, with inventories peaking at near-record levels, and delaying the start of the depletion season until mid or even late November.
But with inventories now close to the maximum, there is limited scope to add to them further, and prices have begun to fall to encourage more consumption and divert more gas to Asia.
END OF WINTER
Futures prices for January and especially February onwards have remained higher owing to greater uncertainty about weather forecasts and their impact on inventories in the second half of the winter.
In an “average” winter, only 6% of total heating demand occurs before Oct. 26, so the relatively warm start provides very little information on how cold the season is likely to be as a whole.
Two-thirds of all demand normally occurs between Nov. 19 and March 12, with half of all demand concentrated between Dec. 5 and Feb. 24.
Current forecasts are for temperatures to remain close to or above average throughout this period, but accuracy deteriorates fairly quickly over longer time horizons.
It will be another six to eight weeks before likely seasonal demand and therefore the inventory situation towards the end of winter starts to become clearer.
If the peak consumption season proves colder than currently forecast, significant reductions in demand will still be needed to preserve stocks for the end of winter.
