(Montel) Italy's strong reliance on natural gas means a potential price spike in the event of a harsh winter, even though storage levels are currently hovering at full capacity, experts told Montel.
Italy relies on gas for around 50% of its power output, and a severe winter with high demand could result in a physical shortage by February-March if gas storage becomes depleted, said Davide Tabarelli, head of energy research firm Nomisma.
The country’s gas storage facilities can provide peak flows of around 200mcm/day, but this could drop to 100-150mcm/day once levels run low, due to an associated drop in pressure, experts warned.
Nicola Armaroli, research director at Italy’s CNR research body, said peak gas demand in Italy can reach around 400mcm/day, meaning there is a risk of shortage given the lower peak capacity of storage.
“Storage is full, but this does not mean energy security,” said Diego Pellegrino, trader and CEO of Eroga Energia.
“The worst-case scenario could happen as early as February, if LNG flows remain the same as they are today, because storage could be reduced to zero before the end of February,” he said.
European gas prices spiked to record highs last year following Russia's invasion of Ukraine in February and subsequent sharp cuts in Russian gas flows to Europe.
In Italy, the PSV gas front-month contract peaked at nearly EUR 338/MWh in late August. However, the January contract is now trading around EUR 46.75/MWh, thanks mainly to a relatively mild autumn and efforts by the EU to keep storage levels high before winter and find alternatives to Russian gas.
Meanwhile, 2023 is shaping up to be the warmest on record following a record-breaking October, according to European climate scientists.
Still, CNR's Armaroli said he expected “great volatility and potentially very high prices” in the first quarter of 2024 – if a severely cold winter were to spur demand and deplete storage reserves.
“A doubling of prices compared to those in the years prior to the war is something that might happen again,” he said.
Full storage, for now
Italy’s TSO last month said it was carrying on injecting gas into storage to further increase reserve levels, currently at over 99%, to enhance supply security in the “critical period of January-March”, despite the start of the traditional withdrawal season.
Some 60-70% of total Italian stored gas is withdrawn in the winter and replenished in June-November, Armaroli said, with 20-40% of the total – the so-called “cushion gas” – never removed as it guarantees operating pressure and permits optimal withdrawal conditions.
On a typical winter day, only half of Italy’s gas supplies originate from storage, with the remaining 50% provided by imports.