Winter May Spark Gas Storage Crisis in Europe

Just how bad the energy crisis will get in Europe depends on how low the temperature falls in January. 

“If this is a cold winter we’re in real, real trouble,” Marco Alvera, chief executive officer of Snam SpA, Europe’s biggest operator of natural gas-storage sites, said in an interview in Bloomberg’s New York headquarters. 

Frigid weather at the start of the year would boost gas consumption and deplete storage sites, potentially leading to a “dangerous” point when there’s not enough pressure to withdraw any more, he said. At that point prices, would go through the roof.

European gas inventory is unusually low for this time of year, and it’s being drawn down more quickly than usual too. A recent cold snap spooked the market, driving up prices even before winter officially begins. With few sources of new supply available, high prices may prompt factories or industrial firms to lower consumption, reducing their output.

Some politicians in Europe are starting to worry about keeping the lights on. The Italian economic development minister warned Tuesday of the risk of blackouts across Europe if there’s not enough gas to generate electricity. 

Alvera said there won’t be “prolonged blackouts” but industrial users may be asked by governments to switch off or reduce demand.

Part of the problem is that high gas prices over the summer meant storage facilities weren’t replenished as much as in past years and they’re being depleted quickly. Across Europe, sites are now about 68% full, down from 77% a month ago and well below the 10-year average of 85% for this time of the year, according to data from Gas Infrastructure Europe.

Alvera said Europe should create a strategic reserve of gas, like the U.S. Strategic Petroleum Reserve. When gas prices get too high, supplies could be released to the market. The idea has been raised in Europe and energy ministers are meeting in Brussels Thursday to discuss possible ways to shield consumers from steep increases in energy bills. 

“Storage has to be a national security issue,” Alvera said. “The storage of gas is much more important and strategic than the storage of oil.”