Energy hoarding in Overdrive eases winter deficit worries

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(Bloomberg) – Efforts to stockpile fuel mean Europe and Asia head into winter with healthy supplies as governments seek to counter dwindling supplies from Russia.

Natural gas storage sites in Europe are around 92% full, above the five-year average of 87.6%. Germany reached 95%, a level it aimed to reach by November 1. The situation is similar in Asia. In Japan, the stocks of liquefied natural gas held by the country’s power producers are also above average.

The rise in reserves bolsters optimism that Europe can avoid shortages or rationing, with natural gas prices falling to their lowest level since June. The region has been gripped by its worst energy crisis in 50 years as Russia cuts supplies in retaliation for sanctions imposed for its invasion of Ukraine.

“Concerns over energy security have led governments to try to build up stocks ahead of the upcoming Northern Hemisphere winter,” said Warren Patterson, head of commodities strategy at ING Groep NV in Singapore. This is evident in Europe, where gas storage is “well above” initial targets, he said.

With the filling of European gas storage sites, energy traders are also storing LNG in ships. Some 2.6 million tonnes of LNG were parked off the coasts of Europe and Asia earlier this month, according to energy intelligence firm Kpler. It’s the most ever.

In Asia, demand for fuel oil, a product refined from crude oil, is weakening. Fuel oil imports to Japan, South Korea, Pakistan, Sri Lanka and Bangladesh were down more than 50% last month from August, and were more than 40% lower than a year earlier. earlier, according to data from ship tracking company Vortexa. This followed a wave of restocking in August when gasoline prices surged.

“There are few signs so far of a significant increase in Asian demand for fuel oil for power generation,” said Roslan Khasawneh, principal fuel oil analyst at Vortexa.

To be sure, energy prices remain at historically high levels as Moscow’s war on Kyiv drags on, upending trade flows and disrupting the supply of raw materials. They are also buoyed by a tight shipping market as increasingly stringent sanctions against Russia come into effect.

The inability of European countries to reduce consumption and a colder than normal winter could quickly empty the tanks and make it more difficult to fill them next year, especially with a reduced supply of Russian gas.

“There could be an element where the market becomes complacent,” ING’s Patterson said, noting that the peak heating season is still ahead. “But, even more concerning for Europe, is the winter of 2023 and 2024, which is expected to be an even tighter period. This means that high gas, LNG and coal prices are expected to persist for much of 2023.”

Still, some weather forecasts point to a warmer-than-usual winter in Europe and parts of Asia, including Japan, which would limit demand during the peak heating season.

“The past few months have seen the largest global effort to stockpile fuels in years, resulting in the healthy supplies we have now,” said James Whistler, chief executive of energy brokerage Vanir Global. Markets Pte. in Singapore. “Temperatures are currently quite mild in Europe, Japan, China and Korea, pushing electricity demand to seasonal lows.”

©2022 Bloomberg LP

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