Germany could suffer economic losses of around 40 billion euros if this winter turns out colder than average, gas utility Uniper has warned in a report that said such a development could plunge Germany into a recession.
Every year, as October begins and with it, quite often, heating season, Europe begins a race to fill its gas storage facilities in time to secure a comfortable level of stocks ahead of peak demand for electricity and heat. Norway stands ready to step up gas exports to the European Union, U.S. LNG producers stand ready to boost cargoes bound for Europe, and, according to Germany’s energy market regulator, there is plenty of gas. There is one problem with that. The situation could change very quickly.
Germany’s gas storage capacity is currently at a little over 76% full. It should be 90% full to prevent the economic devastation Uniper is warning about. There would still be losses, even with 90% full storage, but they will be a lot lower than 40 billion euros, which is equal to some $46.6 billion. If storage is full at 90%, a very cold winter would “only” cost the German economy 14 billion euros, or $16.3 billion, according to the study that Uniper commissioned, conducted by a consultancy outlet called Frontier Economics.
The second sum might not look like peanuts, but, according to Uniper, the difference between the two is “a difference of around 25 billion euros, which would make the difference between stability and recession.” This is how vulnerable Germany’s economy has become to any unfavorable fluctuations in gas supply.
From the Uniper report, it appears that some financial damage—measurable in double-digit billion sums—is guaranteed. It is also unlikely that this damage remains as low as 14 billion euros because keeping storage levels at 90% during peak demand season is impossible precisely because it is peak demand season.
Not everyone is so pessimistic, however. In another recent report, Independent Commodity Intelligence Services said that even extra-low temperatures during December and January would not compromise the supply security of natural gas in Germany, so there was no reason to worry about it.
“Even in the event of a very cold winter, gas storage and additional liquefied natural gas (LNG) can together ensure sufficient supply with Europe having built enough regasification capacity,” ICIS said in its report. The outlet admitted that in a severe winter scenario, Europe could see its gas reserves drop all the way to 20%, which is red-zone low, but that would not be a problem because there will be more liquefaction capacity coming online next summer. Still, ICIS also admitted that price could become a problem as demand for LNG rises during the winter.
Meanwhile, earlier this month, Uniper asked for permission to close one of Germany’s largest natural gas storage facilities because it could not fill it in time. The reason has to do with the geology of the storage site, which is porous rather than cavernous, meaning it needs to be filled and emptied slowly, Bloomberg said in a report on the news. It also, per Uniper, has to do with regulations, which have made it uneconomical to make the effort to fill the Breitbrunn facility.
Also, meanwhile, Ukraine has said it would need to step up gas imports this winter, and by quite a margin. “We plan to boost import capability by around 30%. It will all depend on how quickly we can restore things. The sooner we manage to put facilities back into operation, the less gas we'll need to import,” energy minister Svetlana Grinchuk said this month. The gas would be coming from G7 members, among them Germany.
By Irina Slav for Oilprice.com