Easy Money in European Gas Thwarted by Brimming Stockpiles

(Bloomberg) -- Buying European natural gas in the summer to sell during winter is the most profitable it’s been for eight years -- at least on paper. The trouble is there’s no room to store it.

An unusually mild winter means fuel supplies are above average for this time of year and capacity at stores from salt caverns to depleted gas fields is almost booked out. The situation has been compounded by record levels of liquefied natural gas tankers to the region and a shrinking amount of storage space overall.

The absence of a winter cold snap such as last year’s “Beast From the East” drawing down stocks this winter has sent Dutch summer prices to their lowest level in almost a year. Buying in the summer and selling in the winter was traditionally one of the staple trades in the industry, but a narrowing of the spread in recent years made it a less attractive deal.

“I’m buying nothing at the moment,” said Wayne Bryan, a trader and analyst at Alfa Energy Ltd. in London. “We are going into this summer with full storage, among the highest in years.”

Easy Money in European Gas Thwarted by Brimming Stockpiles

More than 4 percent of Europe’s operational gas storage has closed since 2016, according to Gas Infrastructure Europe, the gas industry trade association. Some operators weren’t making any money at all from operating the sites.

While gas storage facilities are about 42 percent full, or near the 10-year average for the time of year, the remaining capacity is “mostly sold out,” said Nick Boyes, an LNG and gas analyst at Swiss utility Axpo Group. “Low storage spreads in the past few years have led to no new storage investment despite growing demand in Europe.”

Easy Money in European Gas Thwarted by Brimming Stockpiles

Gas inventories across Northwest Europe, Italy and Austria are on track to end March at about 27 billion cubic meters, or more than triple last year’s levels, according to BloombergNEF analysis. The higher inventories will reduce the demand to replenish stocks by about 106 million cubic meters per day compared with summer 2018.

To read more on BNEF’s storage outlook analysis, click here

Unseasonably warm temperatures have hit gas markets hard. Dutch April-September summer gas futures, which expire in three weeks, have slumped 16 percent this year. By contrast, the winter season contract has declined by about a third of that amount.

Easy Money in European Gas Thwarted by Brimming Stockpiles

“Where would the bullish impetus come from?,” said Alfa Energy’s Bryan. “I don’t see it coming. There is a lot more downside potential.”

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