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European gas storage on track to meet target, but at cost

General view of pipelines at the gas storage facility of gas trading company VNG AG in Bad Lauchstaedt, Germany July 28, 2022. REUTERS/Annegret Hilse

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  • Gas storage in Europe 70% full, exceeding 5-year average
  • Filling EU tanks to targets costs 50-55 billion euros, analysts say
  • Europe has increased its LNG imports to compensate for the reduction in Russian flows
  • Despite the build-up of gas reserves, uncertainties remain

LONDON, Aug 4 (Reuters) – European countries are on track to hit a target of filling gas stocks by the start of this winter, but the cost of replenishing stocks will be more than £50 billion. euros (51 billion dollars), or 10 times more than the historical average filling of reservoirs for the winter.

European governments feared that cuts in supplies from Russia through its main gas pipeline to Germany would leave countries unable to meet their storage-filling targets for the winter.

They have managed to steadily accumulate gas by curbing demand, switching from gas to coal for some power plants and increasing imports of liquefied natural gas (LNG).

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European gas storage levels were 70.54% full on Tuesday, beating the 5-year average of 70.32%, according to data from Gas Infrastructure Europe (GIE) released on Thursday. Levels were also not far from a ten-year average of around 71.40%.

The European Union aims to refill storage to 80% capacity by November 1 to provide a buffer for the winter months of peak demand. The EU has also set intermediate targets for each country for each month.

Germany, hardest hit by reduced gas flows from Russia, has set a higher target and aims to be 95% full by November.

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“The EU already exceeded its September 1 interim fill target in early July and is still on track to meet the November 1 target,” said Jacob Mandel, senior commodity partner at Aurora Energy Research.

The increase in LNG imports has helped. The EU imported 21.36 million tonnes of LNG in the first half of 2022, compared to 8.21 million tonnes in the same period a year ago, according to ICIS.

In June, for the first time in history, US LNG supplied more gas to Europe than the Russian pipeline.

However, despite being on track to meet the target, analysts cautioned against complacency and warned that Europe’s dependence on Russian gas is far from over. .

“Europe remains dependent on two things: the winter cold and the development of Russian flows in the spring. Uncertainty on both will likely keep prices supported even if stocks continue to increase in the coming months. “said Giovanni Staunovo, oil analyst at UBS.

Analysts and industry experts have warned that it would be impossible to fill gas storage to target levels if Russia completely cuts off supply through the Nord Stream 1 gas pipeline to Germany. Read more

HIGH PRICES

Private companies are primarily responsible for storage injections. European governments offered incentives such as credit lines, loans and grants to help them buy gas as prices hit record highs. Read more

The price of the first-month Dutch TTF gas contract, the benchmark for Europe, has almost tripled since the start of the year due to the slowdown in Russian gas deliveries via Nord Stream 1 and a tight global market. Read more

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This makes buying gas in bulk an expensive business.

“In theory, replacing the North Stream 1 feed this winter based on the future TTF price for the winter season would cost Europe over €50 billion, around 10 times more than it would have been historically” , said Callum Macpherson, head of raw materials. at Investec.

Simone Tagliapietra, senior researcher at the Bruegel think tank, estimates that Europe would need to spend €26 billion to fill gas storage to 80% of current levels.

European imports of natural gas from Russia

Aurora’s Mandel estimated the total cost of gas injected into EU storage since the targets were introduced in June to be around €19.8 billion, assuming all gas injected into storage was and will be purchased at spot price from the Dutch hub TTF.

He expects a further €35.5 billion will now be needed to fill EU storage up to targets, bringing the total to more than €55 billion.

“I would also estimate an additional 300-600 million euros for the cost of using storage,” he said.

The cost of filling storage could be passed on to consumers through ever-higher energy bills or taxation, analysts said.

The European Commission, the EU’s executive, last month proposed a target for all member states to cut gas consumption by 15% from August 1 to allow storage to fill up faster. Read more

EU gas stocks stood at around 78.81 billion cubic meters (bcm), UBS said, still 25 bcm below the level the bank estimates would allow the EU to overcome a complete cut in Russian supplies without significant demand rationing.

Map showing how oil and gas-rich Russia is linked to European energy markets by a series of critical pipelines, the largest passing through Ukraine.

($1 = 0.9817 euros)

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Reporting by Bozorgmehr Sharafedin in London, additional reporting by Marwa Rashad and Susanna Twidale, editing by Nina Chestney and Emelia Sithole-Matarise

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