EU Gas Market May Tap Deep Stocks to Escape Crisis, WoodMac Says

(Bloomberg) --

Europe’s natural gas market, stricken by tight supply and low storage levels, may have to turn to unconventional tactics to get through this winter, according to Wood Mackenzie Ltd.

One possible option is to tap vast reserves of so-called “cushion” gas available in the continent’s storage facilities, which could bring 15 billion cubic meters to the market. That’s almost a fifth of what the region currently holds in conventional inventories, the consultant said. 

The gas is used to maintain supply pressure in a storage facility and cannot usually be withdrawn as it may affect a site’s physical robustness in the future. There are also regulatory issues preventing sales of the gas. 

“However, with the level of concern that there is in the market and the accompanying exceptionally high prices, these are not normal times,” Graham Freedman, WoodMac’s principal analyst for Europe gas research, said in a note on Thursday. 

Europe’s economy has been rattled this year by surging energy prices as tight gas supplies lagged behind demand, with consumption recovering from the impact of the pandemic and as inventories were left depleted by the previous bitter winter. 

The region’s storage sites are only 76% full, far below normal. A cold winter may result in stockpile levels falling to zero by the end of March, unless more Russian gas supply is available, according to WoodMac.

Data for the volume of cushion gas as a percentage of the total capacity in each facility is patchy, WoodMac said, though it estimates those volumes at about 150 billion cubic meters, compared with 83 billion cubic meters in working gas stockpiles at the start of this month. The biggest volumes of such supplies may be in France, followed by Italy and Germany, the analyst estimated. 

“Our understanding is that the use of cushion gas up to 10% will not permanently damage the physical capability of the storage site in future,” Freedman said. With the current high prices at European hubs, it will be tempting for storage operators to use some of their quasi-working gas this winter, replacing the volumes once prices fall in the summer, he added.

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