Page 11 - bne magazine July 2022_20220704

bne July 2022 Companies & Markets I 11
Cup half full
Europe is actually ahead of the game this year. The EU-wide storage tanks were 55% full as of June 20, as the chart shows, and the injection rate remains well above both of the last two years as well as the average for the last five years, according to bne IntelliNews calculations.
Europe has been rushing to fill its tanks at record rates since the very start of this year, when record amounts of gas were added in the first few days of January of over 3,000 GWh per day. Since then injection rates have fallen back, but have remained well above the average rates for recent years, as the chart shows.
The rapid refilling of the tanks has been due to record high LNG deliveries, especially by the US that has been supporting its ally in its effort to prepare for exactly the sort of crisis that is starting to unfold. LNG has a technical maximum limit of 140 TWh/month, or 10-15% of total demand, due to the limits on terminal capacity in Europe, and cannot by itself cover all the current shortfall, as Europe needs a total average of 400 TWh/month.
And this is a very expensive solution. Injecting around 700 TWh into EU storages ahead of next winter (about two months' worth of gas deliveries) at current prices would cost at least €70bn, estimates consultants Bruegel compared to €12bn in previous years.
Injection rates into Europe's gas tanks have been rising slowly in recent years from around 1,000 GWh/day to over 2,500 GWh/day, but fell more recently in 2000 to below 2,000 GWh/day when Europe was suffering from a gas glut. That gave way to gas shortages in the next year, but this year has seen unprecedented increases in the injection rate.
Injection rates into the tanks clearly started to fall after reaching a record peak of over 5,000 GWh/day in May, but are currently on a par with the five-year average rate of just under 4,000GWh/day, which is typical for this time of year.
What is different is that usually gas injections remain steady at around 4,000GWh/day throughout June, July and August, after which the cold weather kicks in and gas starts flowing out of the tanks.
In addition to the “technical problems” with Nord Stream 1, Gazprom announced that TurkStream that supplies Southeast Europe will be closed for repairs for a week this month, and Nord Stream 1 is due to be shut down again for a week at the end of July for its annual repairs.
It remains unclear now that gas flows through Nord Stream 1 have been reduced they will be increased again once the maintenance work is over.
Scenarios
This year the injection rates are already plunging deeply and are expected to fall further fast. The injection rate halved
on June 22 to its lowest level since early June, according to figures from Germany’s network regulator, Bundesnetzagentur (BNetzA).
But even at that rate, Europe will probably avoid a full-blown crisis. It will take more than 100 days to reach the 80% target, or September 30 – just as the traditional heating season starts on October 1.
If the injection rates recover to the pre-June 14 levels then the 80% target will be hit by about August 21, well ahead of schedule, allowing for the scheduled 10 days of annual maintenance work.
But if Gazprom cuts off supplies completely then Europe will miss the 80% target and be forced to hunt for alternatives like LNG and coal as well as introduce rationing of industry's gas. That will, in turn, lead to an economic slowdown and could spark a global recession or even an energy market collapse.
“Even record-high non-Russian imports would not be enough to sufficiently refill storage ahead of next winter. Europe would need to reduce demand by at minimum 400 TWh (or 10%-15% of annual demand). This is possible. A portfolio of exceptional options could abate at least 800 TWh,” energy consultants Bruegel said in a note.
Some, none, normal – those are the scenarios that have currently captured most of the discussion on the looming
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