EU gas stocks could offset 68pc of Russian supply halt

Supply from European gas storages could fill just over two-thirds of the gap that a complete halt to Russian deliveries to Europe could leave in February-March compared with a year earlier.

There is at this stage no indication that Russian gas deliveries to Europe would be affected even if there is a further escalation in Russia-Ukraine tensions, especially taking into account the EU and Russia's mutual dependence on continued flows.

But the US government is assuming that Russian gas transit through Ukraine would be cut in the event of an invasion. And it is also preparing for the "less likely scenario" of a total shut-off of Russian supply to Europe.

A senior administration official said that in case of a halt to Russian supply, European storage inventories could offer relief for a couple of weeks until new supply arrives, for instance in the shape of additional LNG tankers.

European storage inventories have remained at their lowest in recent years. They entered the winter at a record low, following a slow stockbuild last summer.

But stocks could still cover a substantial share of any potential shortfall in Russian deliveries in February-March compared with a year earlier, although this would require countries to also draw on their strategic reserves and would mean that restoring Europe's gas stocks to seasonal averages could take years.

Aggregate stocks of working gas in the EU and the UK were down to 456.9TWh yesterday morning — the latest available data — from 624.3TWh a year earlier.

Net withdrawals have been broadly steady since 10 January, following a slower stockdraw — and even net injections on some days — earlier in the month. Assuming the net stockdraw over the remainder of this month is in line with the 7.4 TWh/d on 10-25 January, this would leave inventories of 412.7TWh at the start of February.

Provided sites are then completely emptied by the end of the winter, this would provide an additional 172.6TWh of supply compared with a year earlier, given that a cumulative 240.1TWh was pulled from sites in February-March 2021.

This would be equivalent to just under 68pc of aggregate Russian pipeline deliveries to Europe, excluding Moldova and the Baltic states, in February-March last year, which were 255TWh.

Some 61.5TWh of Russian gas was delivered through Ukraine, again excluding flows to Moldova, in February-March 2021. If storage would have to fully offset a fall of this magnitude, inventories of around 111TWh could be left by the end of the winter, still almost 256TWh short of the five-year 1 April average of 367.7TWh.

The inventory data include strategic reserves in multiple countries. These would consequently also have to be drawn down if an additional 172.6TWh is to be made available to help offset a complete halt to Russian deliveries. Italy has particularly large strategic reserves of just under 5bn m³, meaning that they already accounted for over 10pc of yesterday's aggregate stocks of 456.9TWh. Other countries that hold strategic reserves include Spain, Poland, Hungary and Denmark.

Withdrawal capacity could slide

Stocks being drawn down rapidly could curtail withdrawal capacity late in the winter.

A stockdraw of 6.8 TWh/d would be required to completely run down inventories by the start of April, assuming that they are 412.6TWh at the end of January.

While this would be lower than the stockdraw in recent weeks, it may be difficult to sustain such withdrawals later in the winter. Withdrawal capacity typically falls as sites are increasingly emptied because of a decrease in the reservoir pressure. And reduced withdrawal capacity would limit the scope for supply from storage to offset weaker — or entirely absent — Russian flows late in the winter.

Cushion gas reserves

Supply from storage could be even higher if site operators were to tap into cushion gas reserves, which are kept at facilities to ensure sufficient pressure for withdrawals.

Some European sites, especially semi-depleted fields such as the Netherlands' Norg and Grijpskerk facilities, hold ample cushion gas.

Removing cushion gas would mean that this may have to be replenished at a later stage to ensure that the pressure required for working gas injections and withdrawals in line with previous capacity is restored.

And completely drawing down working gas inventories by the end of the winter would in any case result in stocks likely entering next winter at an even larger deficit to previous years than in October 2021. It could then take multiple storage cycles for the deficit to be fully eroded, even if deliveries from Russia are restored and assuming strong supply from elsewhere and mild winters.

In any event, assuming that cushion gas reserves remain largely untouched, quicker storage withdrawals would have to be supplemented by stronger supply from elsewhere in February-March if Russian deliveries were to halt completely. As the scope to ramp up pipeline receipts could be limited, much of the remaining gap would have to be filled by additional LNG supply.

By Stefan Krümpelmann