To sell or not?
Gas reserve companies hope to make a fortune this winter thanks to high gas prices in Europe due to shortages of supply and colder weather. However, the recent sharp decline in wholesale prices is affecting the profits of companies.
Europe has filled most of its gas reserves before the winter, but some suppliers are likely to want to hold those reserves until they can sell at more attractive prices.
According to Bloomberg, such a move would push up market prices and further hurt the already recession-prone European economy, largely due to the impact of the Russia-Ukraine conflict on the energy market.
Gas is typically stored by traders in the summer when prices are lower and resold in the winter when prices increase. This year, the contracts have gone in the opposite direction. That means some miners, especially in Germany - the region's largest gas consumer - could lose money by selling their reserves of gas to compensate for supply disruptions.
Gas prices this summer have peaked at around 340 euros/megawatt-hour. Meanwhile, winter signings are currently trading at half as low, nearly 140 euros.
Henning Gloystein, director of energy, climate and resources at Eurasia Group in London, said: This is a real problem that could only be solved if some of the recently nationwide companies resold their gas purchases at high prices and accepted losses.
If gas reserves are held back for whatever reason, the EU will have just one daily supply from liquefied natural gas (LNG) tankers from the US, Qatar, or pipeline supplies from Norway and North Africa.
Any call for additional daily volumes could lead to a slight price increase after a slight decline, putting energy bills at an astonishing level across Europe.
The cost of securing Europe's gas reserves this year is up to tens of billions of euros. Although traders often sell gas immediately after buying - to hedge against risks - they can still suffer losses due to price differences. This is especially serious for utilities and traders who rely heavily on long-term contracts with Russia - which met 20% of the EU's gas demand last winter.
Germany's pain
Europe has increased gas reserves, but only about 10% of Europe's gas reserves are considered national reserves - according to Bloomberg data.
Meanwhile, many companies using state aid, especially in Germany, have increased their gas purchases in reserve in the past summer. The German government has spent up to 15 billion euros on Trading Hub Europe - a German gas market manager - to buy gas reserves. The company has purchased about 60 terawatts of gas per hour, equivalent to about 25% of the country's storage capacity.
To avoid supply risks, governments could also seek to declare a state of emergency. In this case, Germany and other countries will have the right to order the export of reserves.
Germany has passed a law on gas reserve targets. The country will reach the target of 95% by November 1 and the requirement of 40% by February 1. Reserve institutions are at risk of being fined if they do not meet those levels.
Quietness before the storm
futures have lost about 70% of their value compared to the peak in August due to unusually warm weather in October - causing demand to slow down and no need to use reserves. There are also many sources of LNG. Europe is even facing a temporary gas glut. But the continent needs to keep prices higher than in Asia to win the LNG competition.
Although gas prices have now fallen, most experts believe that a rebound is just a matter of timing.
According to weather forecasts, temperatures are expected to drop slightly below normal in mid-November.
BloombergNEF analyst Stefan Ulrich said that cold weather, increased demand or lower-than-expected LNG supply could cause prices to return to higher levels.
