Gas inventories hold strong in light of reduced consumption and warmer weather

Existing gas supplies will likely negate the need for rationing even though European governments missed their gas consumption reduction targets

Easing gas prices and warm weather signal that the risk of a severe downside scenario has subsided substantially. Executives should not be complacent, however, and should note that input costs are set to remain historically elevated, while the operational environment will continue to be uneasy, albeit slightly more predictable in the short term. Additionally, firms should continue to assess their exposure to a renewed energy crunch in Q3 2023 and revisit their scenario planning to ensure they account for re-emerging risks.


  • Warmer weather across Europe has alleviated pressures on European gas inventories, which inched slightly down to 82.0% of full capacity.
  • While European markets, such as Germany, have missed their gas consumption reduction targets, existing supplies will likely negate the need for government-mandated gas rationing.
  • Dutch TTF gas futures have fallen to EUR 70.0 from around EUR 150 throughout December 2022 on the back of reduced pressures on inventories.
  • Energy support measures diverge across Europe, with some governments planning to begin scaling them down from April/May 2023.

Our View

While European gas prices have fallen to September 2021 levels, marking substantial alleviation, they remain historically high and will continue to be a source of inflation pressures. The problem is compounded by the fact that gas operators and suppliers purchased gas supplies at a significantly higher price during Q3 and Q4 2022, which will continue to complicate the operational environment. Warm weather and strong inventory supplies, however, mean that the major risk of government-mandated gas rationing is negligible, even if weather conditions deteriorate through February and March 2023. While electricity caps in some markets, such as the UK, Spain, and Portugal, are set to expire in April and May, governments will likely seek to extend some of them in a more limited capacity, which should prevent a new uptick in inflation. In Germany, the government approved a EUR 99 billion energy support package that introduces preferential rates for businesses, while consumers and small businesses will benefit from a fixed rate of 12 cents per kWh for 80% of their last year’s consumption, with anything above that being subject to market rates. The measure should extend through April 2024 and further provide some predictability when it comes to both headline inflation and input costs.

Tight LNG supplies and higher demand expectations in Asia mean that the problem of gas supplies will likely re-emerge between September and November 2023. While strong inventories through January 2023 should alleviate some of the mounting risks going forward, the permanent loss of Russian gas flows and European governments’ inability to secure substantial new short-term supplies will renew the possibility of hard energy rationing, especially in the case of a cold winter. While the latter is not part of our base-case scenario for Europe, it serves as a reminder that scenario planning will remain crucial in the long term.

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