Mild weather in early January—following on from a previous record warm October—and energy-saving measures by consumers have led to high gas storage levels and lower European gas prices. This bolsters energy security in the continent, not least in Germany, which was particularly vulnerable to Russian gas supply cuts, but is now also benefiting from new liquefied natural gas (LNG) infrastructure coming online. These positive developments will lead to a shorter, shallower downturn in most countries, including Germany.

Why does it matter?

Prices for the key European gas contract, Dutch TTF, have decreased to around €60/MWh, a level last seen in September 2021; a considerable fall from €340 at the end of August and €149 in early December. The primary reason for this is the very mild winter, with record seasonal temperatures in many parts of the continent. In Germany, gas consumption in the first week of January was 38% below the four-year average. Energy saving also plays a role: controlled for temperature, consumption was still 25% below average, with households and small firms now also reducing consumption significantly. Gas shortages this winter can now be ruled out with confidence.

EU gas storage is 81% full, with German gas storage almost 90% filled. This is the highest level ever seen in January, after rising for two weeks after December 21st, an uncommon development. If the weather remains mild, Germany could enter spring with its storage still at two-thirds capacity, and EU storage still over half-full—much better figures than initially expected.

In Germany a first floating storage and regasification unit (FSRU) terminal, to allow imports of LNG, went online in Wilhelmshaven in December, while a second began operating in the port of Lubmin on January 13th. A third FSRU in Brunsbüttel, near Hamburg, is expected to come online in the coming days. The three facilities will provide roughly 15 bn cu metres/year, almost a third of the import shortfall from Russia. Towards the latter half of the year, three more FSRUs with similar capacity are expected to become operational.

What next?

With storage at record highs, Europe’s energy outlook is now in a much stronger position than anticipated. We are revising up our growth forecasts for 2023, with most economies likely to escape recession, although energy price uncertainty and volatility will still keep growth largely stagnant. However, several downside risks remain: gas prices could spike or supply could be disrupted as Europe competes with Asia for LNG supply; critical infrastructure could face sabotage activity; and Europe’s limited storage capacity means that next winter’s energy prices will also be subject to considerable weather-related risks, even if Europe easily refills its storage this summer.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, helping organisations identify prospective opportunities and potential risks.