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After a big jump last week, Europe’s natural gas prices have plunged sharply this week on news that Germany’s gas stockpiles are running ahead of schedule. Benchmark Dutch front-month futures crashed 21% on Monday, reversing last week’s 40% jump after Germany’s Economy Minister Robert Habeck revealed that the country’s gas stores are filling up fast and are on target to meet the October target of 85% full.
Monday’s plunge has brought some relief after a furious rally, though futures are still trading almost six times higher than a year ago. Europe is on the brink of a recession, with inflation running at the highest in decades in several countries. European Governments have collectively set aside some 280 billion euros ($278 billion) in relief packages.
However, the fundamental picture still looks bleak for Germany even with full storage sites, with the country in danger of not being able to go through the winter if Russia decides to halt flows. The Czech Republic, which holds the European Union’s rotating presidency, plans to call an extraordinary meeting of energy ministers to discuss bloc-wide solutions.
Ahead of Schedule
But it’s not Germany that has exceeded storage targets. Europe’s gas storage is running about nine weeks ahead of last year, an impressive feat even after flows from Russia have been severely curtailed. European gas storage levels are above 70%, and have even surpassed the 5-year average, according to data from Gas Infrastructure Europe (GIE).
By November 1st, the EU will likely hit 80% natural gas storage capacity–just in time for peak winter demand. Germany is even aiming for 95% capacity, and is already at 75%.
This is set to curb oil demand since some operators have begun switching from gas to oil generation due to high natural gas prices. "The EU already surpassed its September 1 interim filling target in early July and is still on pace to reach the November 1 target," Jacob Mandel, senior associate for commodities at Aurora Energy Research, has told Reuters.
Indeed, analysts at Standard Chartered Plc are saying that President Vladimir Putin’s gas weapon will be effectively blunted by the inventory build, with Europe set to go through winter “comfortably” without Russian gas.
That said, Europe will have to pay a heavy price: the cost of replenishing natural gas stocks is estimated at over 50 billion euros ($51 billion), 10 times more than the historical average for filling up tanks ahead of winter.
By Alex Kimani for Oilprice.com
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Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com.