Europe is now stuck with a huge stockpile of natural gas after hoarding it last year for a brutal winter that never came

Europe is now looking at its highest natural-gas stockpiles in years.

John MacDougall/AFP/Getty Images

• Europe has managed to avert an energy crisis thanks to a warm winter.
• But countries in the region hoarded natural-gas supplies last year on fears of a shortage.
• Storage facilities are now at their highest levels in years — but natural-gas prices have tanked.

Europe got lucky — it managed to avert an energy crisis, all thanks to a warm winter.

But it has another problem. Countries in the region hoarded so much natural gas at higher prices that it's now stuck with stockpiles of the fuel that have depreciated in market value.

For example, benchmark Dutch natural gas futures have fallen nearly 28% this year so far to around 53 euros, or $57, per megawatt-hour. The Dutch natural gas futures are also 85% lower than a record high of €349 per megawatt hour in August. 

The price spike had been driven by fears that Europe would be caught in a brutal winter as Russia — a key supplier — would continue cutting piped gas flows to the continent in retaliation to Western sanctions over the invasion of Ukraine.

The concerns had sent Europe scrambling to import liquefied natural gas from other countries and fill up its storage facilities.

But the harsh winter it was fully prepared for did not come — Europe experienced its third warmest January in 2023, with average temperatures 2.2 degree Celsius, or 35.96 Fahrenheit higher than the average between 1991 and 2020, according to the EU's Copernicus Climate Change Service.

It meant that European countries did not need to turn up the heating all that much. And hence, its regional natural-gas inventories — which are at about 65% capacity, on average —  are at their highest levels in years, according to a Bloomberg analysis of data from Gas Infrastructure Europe published Monday.

Though the high storage levels are soothing concerns about an energy crisis in Europe, particularly since Russian gas deliveries to the EU fell to historically low levels at the end of 2022, it also means that any sales from the stockpile on the spot market now will be at a loss. Any loss could hit European state coffers and might be borne by taxpayers.

"If buyers did not hedge the volumes they stored last summer, they will try to keep that gas in storage until prices potentially rise next winter or further in the future," Stefan Ulrich, an analyst with BloombergNEF, said in the media outlet's Monday report. "It seems unlikely that buyers will be able to recoup their buying costs in full unless the market dramatically tightens," he added.

The International Energy Agency, however, held an optimistic view of things when it said in a November 2022 report: "it's never too early to prepare for the next winter."

The European Central Bank, or ECB, also warned in its bulletin that current higher-than-expected natural-gas inventories could deplete faster than expected should the mercury fall sharply, or if there's a prolonged cold spell in the coming months, leaving the EU gas markets in a "more vulnerable position."

It's not just winter, the summer season could pose a problem too. "High temperatures in the summer months would raise gas demand for electricity generation owing to an increased need for air conditioning," the ECB economists cautioned.

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