European storage injection rates flatline
With summer well under way, the gas injection rates into Europe's storage facilities have barely moved for a month, according to data from Gas Infrastructure Europe. The latest data shows 338 TWh in store as of May 5, which is where it had been a month earlier: that is under a third full (30%).
In the past month, some gas has been injected but it has also been withdrawn owing to the persistent cold. The weekend May 8-9 might well see more injections as warm weather is forecast; but this spell is due to be followed by more cold weather, meaning more withdrawals are on the cards. The spring so far this year has been unusually cold in Europe, extending the withdrawal season beyond its average length.
Typically, market appetite for storage injections is dictated by the summer-winter price difference but at the moment, that has almost vanished. There is no commercial benefit in buying gas now as the winter price is only €1/MWh higher. That difference has to cover the cost of pipeline exit/entry capacity as well as the storage operators' margin.
Not only has the European winter been longer than usual but there has also been cold weather in Asia, which is heavily reliant on LNG for gas deliveries. High prices have drawn LNG cargoes away from the Atlantic, almost halving the volume of LNG delivered year on year. This has exposed a new weakness in the European gas supply system: major export pipelines were not built to carry peak day demand and Europe now has other gas buyers to contend with for summer storage.
Other forms of flexibility are also limited this summer and next winter: Norway is embarking on a hefty summer maintenance period – perhaps including some projects that COVID-19 made impossible last year – and output at the Dutch Groningen gas field is also no longer providing the swing service it used to. It is expected to be closed permanently in a few years.
Russian gas exporter Gazprom also wrong-footed the market by not booking additional capacity in Ukraine earlier in the month; prices rose when the news filtered out. With Nord Stream 2 still incomplete, it is not certain that it will be at full capacity by next winter. Gazprom may be counting on capturing higher prices in the winter if spot prices surge.
The situation has also changed within Ukraine: the new head of Naftogaz Ukrainy, the counterparty to Gazprom's transit contract, has been tasked by the government with doing all it legally can to limit Gazprom's ability to dominate central and eastern gas markets, suggesting more friction with Gazprom may be on the way. As it is, Kiev has, by summarily dismissing the previous CEO Andriy Kobolev, undone years of work on improving the corporate governance of state entities and seriously jeopardised its standing with some previously very supportive financial and political institutions in the West.