The EU's Reserves Are Nearly Full, But American Consumers Could Be In For A Hurting In 2023 As Europe Looks To Replace Russian Energy Imports

In October, the White House ruled out a ban on natural gas exports this winter in an attempt to help alleviate energy shortages in Europe.

With nearly half of all U.S. households using natural gas to heat their homes, the U.S. Energy Information Administration (EIA) is expecting an increase in utility bills due to an increase in consumption.

As of Nov. 29, 2022, the natural gas Henry Hub spot price is at $7.24, up 75% from the same period last year. It hit a high of $9.34 in August.

Why It Matters: The winter forecast from December to February is showing colder than average temperatures due to La Nina, a weather system that typically indicates there will be a colder than average winter in the northern tier of the U.S., according to Weather.com.

According to the EIA's short-term energy outlook report, it estimated U.S. natural gas inventories ended October 2022 at more than 3.5 trillion cubic feet (Tcf), which is 6% below the previous five-year average.

The EIA expects household consumption of natural gas to climb between 4% to 5% in the Northeast, Midwest and West, and 7% in the South due to colder temperatures and higher consumption.

If winter is colder than forecasted, then consumption could be 13% higher, sending prices up and future inventories even lower.

By the end of March 2023, the EIA expects natural gas inventories to be 1.5 (Tcf), which would be 7% less than the previous five-year (2018-2022) average. If the weather is 10% colder than forecasted, the EIA expects natural gas inventories to end March 2023 at about 0.9 (Tcf), which is 41% below the five-year average.

The EIA reported a monthly average Henry Hub spot prices peak near $7.70/MMBtu in January 2023, before falling to around $6.50/MMBtu by March 2023.

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Global Disturbances: As the European Union plans to end its reliance on Russian oil by the end of 2027, there is much work to be done to improve energy infrastructure, as countries such as Germany began phasing out their nuclear power plants following the Fukushima disaster in 2011.

As the U.S. is growing towards becoming the largest exporter of liquified natural gas, the EIA reported that total annual U.S. natural gas exports were 6.65 (Tcf) in 2021, the highest on record and has been an annual net exporter of natural gas since 2017.

According to data from Gas Infrastructure Europe, the European Union has filled its gas storage facilities to nearly 94% full.

This comes as good news as 30 natural gas tankers carrying liquified natural gas (LNG) slowed down their routes and even began idling near ports earlier this month, as traders await commodity prices to surge again.

The Last Word: Until the Russia-Ukraine War, Europe relied on Russia for roughly 39.2% of its natural gas supply and now it stands at about 9%, after the Nord Stream pipeline closure and maintenance issues. If temperatures remain in Europe's favor, then the 2022 through 2023 winter season may not be bad as expected.

As the European Union plans to spend $221 billion through 2027 to become independent from Russian oil and gas, 2023 and beyond could be bad years for energy inflation with consumer spending weakening, CNN reported.

Additionally, filling the liquified natural gas reserves for summer 2023 may prove to be even more difficult and potentially more costly for Europe because of the need to replace an abundance of Russian gas and oil that was bought in 2022.

For American consumers, this may mean a period of elevated inflation could last longer than expected into 2023, as commodity prices for oil and gas remain elevated. 

Furthermore, this will help boost U.S. gas producers' profits, especially those transporting its product overseas such as Cheniere Energy, Inc. LNG, Coterra Energy Inc CTRA and Chevron Corporation CVX, among others.

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