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Hazy Shade of Winter - European Gas Markets Avoided Mayhem This Winter, But Challenges Remain

Russia’s invasion of Ukraine in February 2022 caused panic in European gas markets that were already on the brink due to low winter inventories. Near-term supply/demand balances suddenly took on a heightened urgency, and everyone knew that policy and infrastructure changes were needed, pronto. The most immediate concern was the very real possibility that the winter of 2022-23 could see gas rationing within the European Union (EU) due to supply shortages. However, with winter now in retreat, Europe is emerging with record volumes of stored gas accompanied by prices that have fallen to pre-invasion levels. This is no time for complacency, though. While it’s many months away, the winter of 2023-24 looms, with dire warnings that things could be considerably worse in gas markets. In today’s RBN blog, we evaluate how European gas and LNG markets have managed over the last 12 months and discuss the implications for the next year. In particular, we look at the European Commission’s (EC) efforts to inject reforms into European gas markets, not only to accommodate supply disruptions but also to set the stage for a gas market no longer reliant on Russian supplies.

The biggest concern to European gas market observers last spring was that European underground gas storage volumes were barely one-quarter of capacity and well below the levels recorded in the previous five-year period. A major contributor to the low gas inventories was the decision by the Germany-based affiliate of Russia’s Gazprom to deplete its large storage holdings, a move that prompted the German government to take over and administer that capacity itself. As shown in Figure 1 below, Gazprom-controlled storage was only about 10% full at the beginning of March 2022 (right end of red line).

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