The European Union is facing additional costs of 10 billion euro, or $11.2 billion to refill its natural gas storage caverns this year. And this is the best-case scenario, according to the Financial Times. It cold end up being a lot more expensive.
The reason for the much higher bill is the colder winter of2024-2025, which depleted the bloc’s natural gas reserves more than each of the prior two winters when the weather was milder than usual, allowing the EU to retain comfortable levels of gas in storage. Towards the end of this winter, however, gas in storage fell close to 30%, which is a most uncomfortable level. Now, the EU will need to buy a lot more LNG to refill that storage.
“Europe had the first real winter since the war in Ukraine,” one Allianz Trade analyst told the FT, pointing out the slump in wind power generation during the winter season, which pushed demand for natural gas even higher. Wind is still underperforming, by the way.
This stronger demand for gas pushed U.S. exports of liquefied natural gas to an all-time high over the first four months of the year. For most of the past winter, European benchmark gas prices were higher than Asian spot LNG prices for delivery into north Asia, attracting more cargoes to European import terminals. Additionally, LNG demand in China and the rest of Asia was tepid at best, which helped Europe as competition for cargoes hasn’t been as fierce as in previous years.
European gas buyers would want to keep their fingers crossed this doesn’t change as we move closer to summer and that seasonal peak in electricity demand for cooling. Last year, the EU’s total gas import bill hot 100 billion euro, or $112 billion. That’s an eighth of what Brussels wants to spend on rearmament.
By Irina Slav for Oilprice.com
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