Despite a sustained downtrend in U.S. natural gas prices, European benchmark Dutch TTF gas futures have risen nearly 20% throughout the past month. That marks a sharp reversal from a halving of EU gas prices between the start of last November and late February.
Per Reuters, a second consecutive mild winter across most of the European continent has left its natural gas stores fuller than in any other March before, about 80% through the regional heating season.
Brimming storage entering the season, as well as European gas demand reaching its lowest point in a decade, have put the continent's gas stocks on track to end winter around 664 terawatt hours (TWh), smashing last year's record of 629 TWh.
Inventories at the start of the heating season amounted to 707 TWh, more than two standard deviations above the prior ten-year seasonal average. MRP noted last August that Europe would reach its 90% capacity threshold for storage months ahead of schedule, suggesting the continent would be as prepared as possible for any wintertime shock that might strike the continent. Europe has broadly reduced its previous reliance on Russian energy supplies over the past two years following Moscow's formal invasion of the Ukrainian mainland in February 2022. Pipeline gas, which previously flowed to Europe from the East, has been supplanted by massive overseas shipments of liquefied natural gas (LNG).
In addition to the storage capacity among member states, we noted last year that the EU had begun to take advantage of the inroads it has made with Ukraine, home to Europe's second-largest known reserves of natural gas. More importantly, the country has massive underground gas storage (UGS) space that traders can utilize to shore up stockpiles that have easy access to Eastern European markets. State-owned Naftotgaz told Reuters that foreign customers could access more than 10 billion cubic meters (bcm) of storage of Ukraine's roughly 30 bcm capacity, mostly in the country's west, which is far from the front lines of its ongoing war with Russia.
Per Bloomberg, traders injected 2.5 bcm of gas into Ukrainian storage sites last year. Throughout the duration of 2024, Naftogaz has aimed to increase the volume of European traders' gas in Ukrainian underground storage by 60% to 4 billion cubic meters.
Though these are costly losses for Russia, which may need to re-adjust expectations for government revenue and make plans to ensure logistics and frontline operations in Ukraine are not hampered by fuel shortages, many other nations will be impacted by the ripple effect as well — including the U.S.
The sense of security provided by Ukraine's USG being concentrated far away from the front was slammed over the weekend as Russia began a renewed bombing campaign across the country, specifically targeting the country's energy infrastructure, including the Bilche-Volitsko-Uherske (BVU) underground gas storage facility just north of Vivnya, Lviv Oblast.
That is only 85 kilometers from the Polish border, indicating Russia maintains the capability to strike virtually anywhere in western Ukraine. BVU is the second-largest UGS facility in Europe, with a potential volume of 17.05 bcm, well over half of Ukraine's total capacity. For reference, the site can store four times more natural gas inside than Germany's largest storage facility.
Though gas supplies held underground were not subject to any disruption, reports regarding the extent of damage on the surface are conflicting. Gas exchange point no. 3 on the BVU campus was reportedly hit by Geran-2 drones, as well as cruise or hypersonic missiles, and video evidence shows that a large fire erupted. Naftogaz stated that gas supplies to consumers had not been affected, but open-source researchers claim that the gas exchange point is unable to function fully. If the strikes were effective, they could potentially leave natural gas held at the facility temporarily stranded. Threats to European gas held in Ukraine could provide support for the recent rebound in natural gas futures.
Attacks on Ukrainian power plants and energy storage hubs are likely part of a Russian response to the ongoing wave of drone strikes against Russia's oil and gas facilities. MRP has covered this offensive against Moscow's most critical financial lifeline since it began in January, now tallying up hits on 13 of the country's 32 major refineries (as well as a major steel plant), taking as much as 600,000 barrels per day (bpd) of refining capacity offline, and potentially played a role in a six-month ban on all fuel exports which began in March.
Though these are costly losses for Russia, which may need to re-adjust expectations for government revenue and make plans to ensure logistics and frontline operations in Ukraine are not hampered by fuel shortages, many other nations will be impacted by the ripple effect as well — including the U.S.
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