Low gas stocks could limit flexibility

Low storage stocks could limit supply flexibility at the end of the winter, particularly in central and southeast Europe, the European Network of Transmission System Operators for Gas (Entso-G) said.

The low storage stocks “may endanger the ability” of southeast Europe, and to a less extent the rest of Europe, “to face the end of the winter with sufficient flexibility,” Entso-G said. But Europe’s infrastructure offers sufficient delivery flexibility in most of the continent, provided that the gas is available, the group said.

European storage reserves stood at 62.5bn m³ yesterday, about 2.4bn m³ lower than a year earlier, according to industry body GSE. Much of the shortfall was concentrated at central Europe facilities around Austria’s Baumgarten hub, which stood at 11.7bn m³ yesterday, down from 13.1bn m³ a year earlier. Hungary had started the winter with stocks of just 2.81bn m³, 45.5pc of capacity, including strategic reserves. Inventories stood at 2.75bn m³ yesterday, down from 3.45bn m³ a year earlier.

Winter demand in Hungary, Romania, Serbia and Bosnia can only be met if Russian deliveries to Romania and Hungary are 14pc or 50GWh/d higher than in the previous two winters, Entso-G said. The group also found a lack of infrastructure in the region to cope with an interruption to Russian supply, although storage could provide some supply depending on stock levels.

Denmark and Sweden also lack supply flexibility and will require imports of 20GWh/d from Germany this winter, Entso-G said. A decrease in domestic production, in particular maintenance to the Tyra East field could further increase the dependence on interruptible capacity from Germany. But, a new pipeline has eased congestion in the region and a further expansion of capacity is planned before winter 2014-15.

While other regions have greater flexibility to meet seasonal and peak daily demand, Entso-G expects storage stocks to be heavily drawn down by the end of winter. Under the group’s base scenario, stocks would fall to 11bn m³, or 14pc of capacity, by the end of March compared with 23.6pc a year earlier. With cold weather, storage sites would be just 7pc full by the end of winter, while under a milder scenario, Entso-G envisages reserves standing at 27pc of capacity at the end of March.

But supply could be considerably tighter than in previous years, with Entso-G basing its scenario on imports and domestic production in line with the average of the last two winters. Norwegian production is scheduled to be constrained by continuing compressor problems at the Troll field until September 2014, although this also curtailed output in the first quarter of 2013.

UK production and output from small Dutch fields have been in steady decline in recent years. And declining pressure has reduced peak offtake from the Netherlands’ Groningen field, which could further reduce the country’s production this winter.

Russia has increased its exports to Europe this year and plans to reach 160bn m³ in 2013, which would require strong deliveries in December. But with oil-indexed import costs appearing set to decline through 2014, given prevailing prices and a 10pc spot component , there is some incentive for shippers to load their Russian take towards the second half of next year. This could leave supply tight in the first quarter of 2014, and encourage a stronger draw on storage.