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Here is what is in store for gas supplies next winter
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Here is what is in store for gas supplies next winter

August 4, 2023
Over the past year, the supply crisis in Europe has adversely affected many people. The outlook for the coming winter is better. But no expert wants to give the all-clear.

Source: Handelsblatt (article behind a paywall)
Photo: DPA

Berlin. Imminent gas shortages, low storage levels and record prices: 2022 was characterized by the energy shock. There is no sign of it at present. But homeowners, tenants and businesses are asking themselves: How much will our bill be next winter?

Handelsblatt has spoken to energy experts about the gas supply situation. Most of them are confident. However, no one is giving the all-clear without reservation.

“The situation has eased compared to last year,” says Gregor Pett, chief analyst at gas importer Uniper. The availability of pipeline gas and liquefied natural gas (LNG) is high, he says. But, “You can’t hide the uncertainties.”

Jörg Selbach-Röntgen, head of energy trader MET Germany, has a similar view. “Even a small imbalance in the system, such as an unforeseen infrastructure failure, can result in sharp fluctuations in prices,” he says.

Therefore, it’s not just a matter of high storage levels. A look at the gas supply for the coming winter shows where the situation has eased sustainably and where there are risks still remaining.

The gas storages are well filled for the winter.

Unlike last year, gas storage facilities are sufficiently full again. According to data from the Federal Network Agency, the storage level is currently at 88 percent. This means that the level is well ahead of the legal requirements.

The Gas Storage Act passed last year stipulates that storage facilities must be 75 percent full by the 1st of September, 85 percent by the 1st of October and 95 percent by the 1st of November, and again 40 percent by the 1st of February.

Hence, the current gas storage level clearly exceeds the minimum legal requirements.

Well-filled storage facilities play an essential role in the security of supply and act like an insurance policy against bottlenecks. Sebastian Bleschke, Managing Director of the “Initiative Energie Speichern” (INES) joint initiative of the operators of gas storage facilities, currently sees the filling of storages as a no-brainer.

“With low gas prices, there’s motivation to buy gas and then sell it with a surcharge in the winter,” says Bleschke.

Thus, there is a market incentive to fill the storage facilities. This means that the government does not have to help, or ask anyone to buy gas with taxpayers’ money in order to increase the security of supply.

Germany has by far the largest gas storage capacities for natural gas in Central and Western Europe. These are sufficient to supply the Federal Republic of Germany for two to three average cold winter months - provided the facilities are full at the start of the heating season.

Gas supply: LNG infrastructure to remain the bottleneck

However, no matter how well-filled the storage facilities are, they will not be able to carry Germany and its neighbouring countries safely through the winter. From the beginning of the winter, when gas consumption is high and storage facilities are being utilised, gas has to be supplied on a continuing basis.

This used to be possible through existing pipelines. But last summer, Russia completely stopped deliveries via the Nord Stream 1 Baltic Sea pipeline, and gas transit through Ukraine was drastically reduced. Since then, Germany has been dependent on Norway in particular to supply more gas - and for more liquefied natural gas (LNG) to reach Germany.

Due to the lack of own LNG terminals, Germany was completely dependent on the terminals of other countries to supply liquefied natural gas until the end of last year. The German government pushed ahead with the development of its own LNG infrastructure.

However, even by the end of the year, the new infrastructure will not be able to compensate for the capacities of the pipelines from Russia. Uniper expert Pett puts it this way: “Looking at the short and medium term, German LNG infrastructure is certainly not oversized.”

Matthias Peter, Managing Director at gas importer SEFE (formerly Gazprom Germania), believes that there are still weak points: “In order for Germany to have an autonomous LNG infrastructure available, some of the onshore LNG terminals currently under development must still go into operation.” Whether there will be bottlenecks cannot be conclusively predicted yet, he said.

Head of MET Germany Selbach-Röntgen welcomes the German government’s efforts to promote more LNG terminals: “It is good that considerable investment has been made to expand the infrastructure. I see this as economic insurance.”

Gas: Market gas pricing is relaxed, at least for the time being

It is true that no one can conclusively answer the question of security of supply in the short or long term. However, a certain serenity prevails at the moment. Procurement and demand are currently in balance, says SEFE Managing Director Peter. The market has sufficient supply, which reflects the easing of tensions at the trading hubs.

This is also the assessment of Uniper analyst Pett: “Currently, the price level is relaxed.” At the moment, he says, there are no signs of high prices above 300 euros that were seen last year.

INES Managing Director Bleschke believes that the world market is currently sufficiently liquid. “We are not aware of any gas shortages,” he says. This accounts for the very moderate price levels observed at this time.

China has a major influence on the LNG market

The question of whether the LNG market will remain liquid is closely linked to developments in China. Uniper expert Pett points out, “China, as the world’s largest LNG importer, has a big influence on pricing.” China’s demand in the first half of the year remained well below pre-COVID maximums, he says.

SEFE’s Managing Director Peter has a similar view: “China saw consumption drop by approximately 20 percent last year,” he says.

Imports improved again after the restrictions in the fight against COVID were lifted, but pre-pandemic levels are not yet expected to be achieved for 2023.

However, MET’s Selbach-Röntgen is wary of the euphoria in this context: “The demand from Asia is not currently as high as some had assumed a few months ago. “But, this can change very quickly, and it would certainly have a noticeable impact on prices,” he says.

Winter temperatures are crucial for gas supply

The influence of the temperature in the coming winter on prices should not be underestimated, all experts point out. Last winter was mild.

A cold winter could have a negative impact on the outlook. INES Managing Director Bleschke says: “The secure and uninterrupted supply of natural gas is only at risk in the coming winter if it gets very cold, like in the winter of 2010,” says Bleschke from the Association of Storage Operators. At that time, the average temperature nationwide was minus 1.5 degrees Celsius, according to the German Weather Service.

This is where the LNG infrastructure comes in: it is not yet developed enough to meet the gas demand that arises on extremely cold days. “The three floating LNG import terminals that have already been put into operation are not sufficient for the coming winter. If the winter turns cold, there could still be a shortfall,” Bleschke says.

In this case, the possible gas imports and stored gas volumes are not sufficient to fully cover the demand.

Matthias Peter from Sefe warns that there could be distortions if an early, cold winter requires large quantities of gas to be withdrawn from Storage.

There is one thing that all experts agree on, and that is a big mistake: the normal situation of the past few months is tempting many gas consumers to stop being so careful about saving. “We should definitely bear in mind that saving energy is important and will remain important,” says Gregor Pett from Uniper.

Author: Klaus Stratmann