The European Commission proposed new legislation stating that countries would need to ensure gas storage sites reach 80% filled by 1st November. This is an attempt to ensure security of supply in the coming winter. However, with the current high prices seen in the market, partly driven by the conflict in Ukraine, the cost to reach this milestone based on current market prices, is significant. We calculate that this will total to €62 billion, with storage owners in Germany footing almost €14 billion of this bill (Chart 1).
Chart 1: Costs to fill gas storage to 80% by country (EUR bn)
European storage levels are at the third lowest they have been for this time of year in the last 10 years, in percentage terms. However, our calculations show that, to get to 80% full, average daily injections would need to be 2.8 TWh/d, similar to the average injection that we have seen over the past few years of 3.2 TWh/d.
However, will achieving an 80% fill be enough? It is 10% lower than the initial aspiration of the EC of 90%, and the winter of 2021, where we first saw the rallies in price, was the only winter in the last 10 years that we entered with gas storage below this level. In absolute volumes, this will give enough gas to see us through a harsh winter based on historical withdrawals. But with the potential for lower Russian flows, withdrawals could be higher this year.
Commercials of Filling
With the current Winter-Summer price spread being negative, storage owners would be filling sites at a loss. Assuming no forward hedging has been performed, we have calculated that there is a deficit of €8.3 billion in order to fill the sites to 80% and cover estimated operating costs. Assuming this bill will be covered, Europe could be looking at paying Gazprom €1.2 billion for this winter alone (Chart 2).
Chart 2: Compensation required (EUR bn), by storage owner, to fill to 80%
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