record carryover
Gas conservation policies, higher prices and an extended period of unusually warm temperatures between mid-December and mid-January have combined to avert a potential gas shortage this winter.
EU and UK storage on course to end winter 2022/23 at over 54%, well above average of 35% over the past 12 years (“Total gas storage inventory”, GIE, Jan 20) .
But it means there will be little unused space to absorb the overproduction in the 2023 summer season.
The lack of storage will ensure a drop in prices to encourage consumption and discourage production to limit inventory accumulation.
But the futures market is forward looking; Traders are already anticipating a drop in the price, bullish on it and extend it.
The price has been slashed to limit excess inventory and create more space to store gas through the summer of 2023.
Futures prices for gas delivered in March 2023 have fallen from €177 in early October to less than €65 per megawatt-hour and peaked at €338 in August.
The pressure on storage space is likely to keep prices low this summer, even if they rise again next winter.
Given the limitations of the storage system, a record carryover from the winter of 2022/23 will reduce but may not eliminate higher prices and the need for protection in the winter of 2023/24.
High inventories provide greater energy security than low ones, but policymakers should avoid only implementing inventories that are high enough to prevent shortages or price increases next winter.
[John Kemp is a Reuters market analyst. The views expressed are his own]