Brief: EU Natural Gas, One Week Since Ukraine Transit Expiration

Mobius Intel Brief:

One week ago, Ukraine allowed its five year gas transit agreement with Russia’s Gazprom to expire, shutting off approximately 1.35 Bcf/d of Russian pipeline gas supplies to Europe.

Key Intel

• Aggregate EU gas storage depleted at faster rates in the first three days of Jan as the cooler temps and a Norwegian LNG plant outage on Jan 2 added to Europe’s fluctuating supply routes. Between Oct 1 and Jan 4, EU gas storage fell by nearly 940 Bcf — the largest absolute margin since winter ‘16-’17.

• Moderate temperatures have since eased pressure on EU gas inventories, with this year’s seasonal depletion from Oct 1 to Jan 6 increasing to -970 Bcf (-36%) — now the third-largest seasonal withdrawal since winter ‘11-’12.

• While Europe’s weather forecasts only show a short stint of below-normal temperatures through the middle of January, a 0.65 Bcf/d outage from Jan 2 to Jan 9 at Equinor’s (Norway) Hammerfest LNG plant has ensured supply fears continue to support Dutch TTF. The front-month (Feb ‘25) Dutch TTF contract has held above $14.40 since Dec 26th.

• Central Europe has rerouted its gas purchases from Ukraine and Slovakia with increased imports from networks in Germany and Italy. Slovakia, meanwhile, has turned to Hungary for its gas while Slovakian officials plan retaliatory policies against Ukraine for lost transit revenues.

Looking Ahead

EU gas inventories are on track to end winter ‘24-’25 with 1.01-1.33 Tcf or nearly half of the ending balance at the end of winters ‘23-’24 and ‘22-’23. European gas supplies have yet to be tested by extended cold shocks in the post-Russian pipeline gas era. Gas inventories have depleted at historically elevated rates despite moderate temperatures through the first half of winter ‘24-’25.

Additional pressure on Germany’s gas network after the Ukraine gas transit agreement could amplify Germany’s economic turmoil ahead of the country’s snap election on February 23.

• Costly energy policies and burdensome emissions regulations fueled the collapse of Chancellor Scholz’s three-party coalition government in November and could lead to long-term tailwinds for 1) US energy exports via new German energy policy or 2) incremental domestic demand growth from industrial migration.

• Germany’s ongoing efforts to secure reliable supplies continued today, as Reuters reported that Germany’s Uniper signed a deal with Austria’s OMV to receive gas supplies from OMV’s Black Sea project beginning in 2027. The deal amounts to ~0.03 Bcf/d or 1-2% of Germany’s daily gas demand.

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