Europe's record gas stocks amid mild winter raise energy security, policy questions

(Reuters) - With only a few more weeks left in the heating season, Europe is on course to end the winter with a record amount of gas in storage, sending prices sliding and dispelling fears about energy security.

But before policymakers congratulate themselves on successfully managing the crisis caused by Russia’s invasion of Ukraine, they should recognize they have been exceptionally lucky with the weather.

Back-to-back mild winters in 2022/23 and again in 2023/24 have reduced heating demand for both gas and electricity and allowed the region to amass record gas inventories.

The most recent winter has been predominantly mild, wet and windy across Northwest Europe, slashing heating demand while causing a surge in wind farm generation, a double saving on gas.

There have been relatively few episodes of “dunkelflaute”, the German word describing cloudy, windless and very cold weather, which zero-out solar and wind generation, forcing the grid to rely on gas to keep meet demand.

There is no guarantee the region’s luck will last; next winter could be significantly colder with less wind generation, resulting in a double jump in gas consumption.

The broader issue is that increasing reliance on variable wind and solar, driven by short and medium term weather patterns, is inducing increased variability in winter demand for gas and gas-fired generation.

During the winter of 2023/24, wind significantly reduced stress on the electricity and gas supplies – but it could just easily add to the stress on both systems in future.

NAO FORECASTING

The North Atlantic Oscillation (NAO) is the “single most important factor for year to year fluctuations in the seasonal climate around the Atlantic Basin”, according to researchers at the Hadley Centre in Britain.¹

“Variability in the NAO describes the state of the Atlantic jet stream and is directly related to near-surface winds and hence winter temperatures ... across North America, Europe, and other regions around the Atlantic Basin.”

At its most basic, the NAO describes the state of the atmospheric pressure differential between Greenland-Iceland (normally an area of relatively low pressure) and the Azores-Bermuda (normally an area of high pressure).

When the pressure difference is greater than average, the NAO is said to be positive, and strong westerly winds are directed across Northwest Europe, bringing lots of warm, moist air from across the ocean.

When the pressure difference is below average, the NAO is said to be negative, and westerly winds are directed across Southern Europe, while Northwest Europe experiences less windy and drier conditions.²

The NAO is much more unstable and variable in the short and medium term than the more familiar El Niño -La Niña cycle in the Pacific.

In recent years, however, researchers have made progress in successfully forecasting the NAO for several months ahead, which is the basis for seasonal winter weather forecasts.

The NAO can be forecast based on the state of El Niño -La Niña, the extent of ice cover in the Kara Sea area of the Arctic Ocean and a number of other variables.

It is now possible to forecast the course of NAO and average winter weather with some success as early as November, according to the U.K. Meteorological Office.

MILD AND WINDY

The NAO was exceptionally positive in December 2023, and to lesser extent in February 2024, directing lots of warm wet westerly winds across Northwest Europe in both months.

In Frankfurt in Germany, temperatures were well above the long-term seasonal average in December (+2.8°C) and again in February (+5.8°C), which sharply reduced heating demand.

In London, temperatures were also well above average in December (+2.3°C) and February (+3.3°C), cutting the need for both gas-fired central heating and gas-fired electric heating.

At the same time, wind speeds across Northwest Europe were faster than normal, boosting generation from onshore and offshore wind farms.

Increases in wind farm capacity and higher average wind speeds combined to create a surge in wind generation.

Germany’s wind generation soared to 19.5 terawatt-hours (TWh) in December 2023 from 12.2 TWh in December 2022.

Britain’s wind generation climbed to 9.7 TWh in December 2023 from 7.4 TWh in the same month a year earlier.

In Germany, the increase in wind output (+7.3 TWh) mostly reduced generation from coal (-5.1 TWh) and gas (-1.0 billion TWh).

In the United Kingdom, increased wind output (+2.3 TWh) mostly reduced generation from gas (-3.0 TWh).

CONSERVING GAS

The result has been a much smaller depletion of gas inventories than usual since the start of winter 2023/24, with the impact concentrated in December and February when the NAO was strongly positive.

Inventories across the European Union and the United Kingdom depleted by an average of just 3.2 TWh per day in December compared with an average of 4.1 TWh per day over the previous ten years.

The depletion was the smallest since December 2019 and before that December 2015, both of which were characterized by a strongly positive NAO.

Inventories depleted by an average of 3.0 TWh per day in February 2024, compared with a prior ten-year seasonal average of 4.8 TWh, and the slowest since February 2014.

As a result, stocks were 279 TWh (+67% or +2.16 standard deviations) above the prior ten-year seasonal average on March 10.

The surplus had swelled from 167 TWh (+18% or +1.70 standard deviations) at the start of the winter heating season on October 1.

Most of the increases occurred in December (+29 TWh) and February (+57 TWh), with a smaller rise in November (+19 TWh), and the surplus actually tightened slightly in January (-8 TWh).

POLICY LESSONS

Luck with the winter in 2022/23 and again in 2023/24 has played the biggest role improving gas supply security in Europe and was probably more important than policy measures to promote gas conservation.

Two mild winters have boosted stocks to a record seasonal high and pushed prices back to levels prevailing before 2021 once inflation is taken into account.

But Europe’s leaders would be unwise to rely on being lucky a third time. Policymakers and energy industry must consider how they would cope if next winter was characterized by a predominantly negative NAO, higher heating demand and less wind generation.

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