Gas prices have lost fear – Newspaper Kommersant No. 39 (7484) of 03/07/2023

The end of the calendar winter and the imminent end of the heating season in Europe gave local politicians a reason to emphasize how cleverly they managed to avoid an energy crisis, despite the almost complete absence of Russian gas supplies. German Chancellor Olaf Scholz even expressed surprise on March 5 at “with what ease” a country that used to get half of its gas from Russia managed to do without these supplies. “And what some expected did not happen: there is no economic crisis in Germany, there is no shortage of gas or anything like that,” he told CNN.

Moreover, gas prices in Europe fell below $500 per 1,000 cubic meters by early March, to their lowest level since August 2021. This result was made possible thanks to the huge efforts of European companies to accumulate gas reserves in storage in the summer of 2022 at extremely high prices, reduce consumption (due to high prices), the arrival of a large number of LNG cargoes in Europe (due to high prices), and before all thanks to the exceptionally warm weather. According to the European climate service Copernicus, autumn 2022 was the third warmest in Europe in at least 30 years, December was the seventh, and January 2023 was the third. Simply put, European politicians are very lucky.

Thanks to a warm winter, gas reserves in European storage facilities at the beginning of March are about 64 billion cubic meters, which is about 30 billion cubic meters more than a year ago. Due to such high inventories, the market no longer expects gas shortages, and the cost of futures for delivery in the fourth quarter of 2023 is only 15% higher than current quotes.

As a matter of course, it is assumed that LNG supplies to Europe will remain as high as in 2022, although spot LNG prices in the EU are already lower than in Asia. It is also assumed that gas consumption in Europe will not grow this year, although last year’s high prices are no longer holding it back. Finally, the possibility of cutting off the supply of Russian gas, which is still coming to Austria and Italy in transit through Ukraine, is not taken into account.

A warm winter masked Europe’s energy problems, but hardly solved them. In 2021, Gazprom supplied the EU with more than 140 billion cubic meters of gas, in 2022 – about 60 billion cubic meters, and this year, deliveries are likely to fall to 22-25 billion cubic meters. To even partially replace these volumes, Europe will have to continue to offer higher prices for LNG than other regions. And any anomalies that may affect the filling of UGSFs – from weather to technical accidents – will bring to life the ghosts of price volatility in 2022.