Europe's gas reserves touch 13-year low: What's the reason?
What's the story
Europe is facing a major energy crisis as its gas reserves hit a 13-year low. The situation has sparked fears of "winter panic" among traders and experts alike. According to Greg Molnar, a gas analyst and professor, the last week of August saw EU's gas storage only 63% full. This is significantly lower than the average of 80% for this time of year and among the lowest levels recorded historically.
Winter forecast
Heightened winter price volatility risk
At the current slow pace of gas storage injections, the EU is likely to enter the winter heating season with gas stocks about a fifth below the five-year average.
This would be their lowest level since 2013, Molnar said.
He warned that "low storage levels are naturally increasing the risk of heightened winter price volatility," which could be exacerbated by "cold spells or slow wind patterns" leading to higher gas consumption during winter months.
Market volatility
UK faces market volatility risks
The UK, one of Europe's biggest gas consumers, could be particularly vulnerable to market volatility. This is because it has some of the lowest levels of domestic gas storage capacity.
Usually, the country relies on imports via pipeline from Europe or tankers from the US and Middle East.
Chris O'Shea, CEO of Centrica (British Gas owner), recently said that the UK has "almost no gas in storage" for this winter season.
Storage challenges
Gas stores struggle to meet target
The EU's gas stores have struggled to meet a diluted target of 80% full by winter's start.
This is largely due to the US-Israel war on Iran, which has severely disrupted oil and gas exports from the Gulf region.
A cold end to last winter and higher-than-usual gas power generation during Europe's summer heatwaves have also contributed to this situation.
Price surge
'Winter panic' grips European natural gas market
Despite the summer season, Europe's gas market prices have remained relatively stable.
This is due to hopes that the Strait of Hormuz would reopen and winter stocks could be replenished.
However, with no such developments in sight, a "winter panic" has gripped the European natural gas market over the past week, according to Bjarne Schieldrop, chief analyst for commodities at Nordic banking group SEB.