Russia’s invasion of Ukraine in February 2022 caused panic in European gas markets that were already on edge due to low winter inventories. Short-term supply-demand balances suddenly took on greater urgency, and everyone knew that policy and infrastructure changes were needed, soon. The most immediate concern was the very real possibility that the winter of 2022-23 could see gas rationing in the European Union (EU) due to supply shortages. However, with winter 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. Although many months away, the winter of 2023-24 is approaching, with dire warnings that things could get considerably worse in the gas markets. In today’s RBN blog, we assess how European gas and LNG markets have fared over the past 12 months and discuss the implications for the year ahead. In particular, we look at the European Commission’s (EC) efforts to introduce reforms to European gas markets, not only to adapt to supply disruptions, but also to lay the foundations for a gas market that already it is not dependent on Russian supplies.
The biggest concern among European gas market watchers last spring was that European underground gas storage volumes were barely a quarter of capacity and well below levels recorded in the previous five-year period. A major contributor to the low gas inventories was the decision by Russia’s German subsidiary Gazprom to sell off its large storage holdings, a move that prompted the German government to take over and administer this capacity As shown in Figure 1 below, Gazprom-controlled storage was only about 10% full at the beginning of March 2022 (right end of the red line).
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