Editorial comment
While Europe is experiencing waves of unprecedented heat, with drought and wildfires prevalent across much of the continent, experts have already begun to issue warnings for this coming winter. Dwindling gas storage capacity has sparked concern amongst analysts, with Wood Mackenzie stating that inventories currently stand at just above 50%, which is “historically low” for Europe in late July. 1
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Various pressures are at play in potentially pushing Europe’s gas market towards a crisis point. The renewal of conflict in the Middle East, increased demand for LNG in Asia, and limited forecasts for additional LNG supply growth over the coming months are all combining to drive gas prices upwards and limit inventory growth ahead of the winter. If such pressures continue, worst-case scenario forecasts suggest that gas storage is at risk of being below 70% of total capacity at the start of the coming winter, compared to the five-year average of 90%.
While US natural gas inventories remain strong, similar news has emerged across the pond within its oil sector. The US Energy Information Administration (EIA) has noted falling crude oil inventories at tank farms across various states, most notably in Cushing, Oklahoma, where oil inventories fell below 20 million bbl in mid-June.2 These tanks require a minimum volume of crude oil or petroleum product to operate efficiently, sometimes known as ‘tank bottoms’ or ‘dead storage’. If levels fall below this volume, then various issues can occur, such as loss of suction, equipment failure, and system shutdowns.
Oil inventories in the States are thus equally subject to recent pressures, as much as European gas storage. Since the release of oil from its strategic petroleum reserves earlier this year, the US government has reported that oil levels are at their lowest in more than 40 years.3 Refineries and petrochemical plants across the region have utilised the withdrawn crude to counter the shutdown of traffic bypassing the Strait of Hormuz. These facilities are operating at extremely high levels and have ramped up processing the amassed stockpiles to ensure sufficient exports of petrol, diesel, jet fuel, and many other chemicals to global markets. What has emerged in Oklahoma in mid-June may become more common in the coming months, especially in these energy-intensive regions, if hostilities continue and reserves thus dwindle.
While turbulence is likely to persist across both our weather systems and geopolitics, more positive stories have also emerged. Dubai-based port operator DP World is in discussions to build a new export terminal on the east coast of the UAE, to bypass the Strait of Hormuz entirely, although it has declined to directly comment on the matter at the time of writing.4 Thus, whilst immediate forecasts remain dreary across the oil and gas sphere, there may be clearer skies on the horizon.
- Is Europe’s gas market inching towards a winter crisis?
- EIA – Today in Energy
- Financial Times
- Financial Times
