European countries have been trying to increase their gas reserves ahead of the winter, following the reduction of Russian gas supply by around 80% over the last two years.
Analysts from Morgan Stanley say while the bulk of the decline in European gas supply from the Nord Stream 1 pipeline has already occurred, the remaining 20% is an “important swing factor in any supply/demand modelling.”
The forecasting suggests available gas supply is set to drop another 11% in the next gas year — which runs 12 months from October. They highlighted that supply from other regions such as Norway, the U.K. or North Africa is “broadly maxed out” and questioned whether demand can fall quickly enough.
Natural gas inventories if the Nord Stream 1 falls to zero
Gas Infrastructure Europe, Morgan Stanley research
The analyst team, led by equity analyst and commodities strategist, Martijn Rats, also expressed concern on Wednesday over state-owned gas provider Gazprom’s statement last week that it will halt gas supplies into Europe for three days via its main pipeline due to maintenance on the pipelines only remaining gas compressor, Trent-60.
The closure of the Nord Stream 1 pipeline will run from Aug. 31-Sept. 2.
They said due to the stockpiling from countries like Italy and Germany ahead of the pipeline shutdown, this winter should be “manageable” but next year and the year after could prove an “exceptionally tight winter”
“If Nord Stream 1 flows fall to zero, this winter’s inventories should also still be manageable,” the team said, in a note to clients on Wednesday.
“However, if those flows don’t recover, the accumulating loss next year would then create an exceptionally tight winter 2023/24.”
They also cautioned that Europe’s high liquified natural gas (LNG) imports have been made possible by low LNG imports into China. If China raised the import threshold again as it emerges from its COVID lockdowns, “this could tighten the LNG market further”. And they acknowledged uncertainty about demand.
“The precise impact remains hard to estimate, given that prices have reached unprecedented levels,” the analyst note said.
Dutch TTF gas futures jumped another 7% to 298 euros per megawatt hour on Thursday to take this year’s gain to an incredible 321%.