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Europe is set to enter the heating season with the lowest gas storage levels in at least 15 years, threatening higher prices for businesses and households this winter.
Storage facilities in the EU are forecast to end the critical gas restocking season, which typically runs between April and October, only 76 per cent full, according to the consultancy Wood Mackenzie. That would be the lowest peak for stored gas since at least 2011, according to data from Gas Infrastructure Europe.
The low levels come after the US-Iran war cut off shipments of liquefied natural gas through the Strait of Hormuz, through which a fifth of the world’s supplies are normally transported, and reduced production from Qatar and the United Arab Emirates.
EU storage facilities started the restocking season only 28 per cent full after a particularly cold winter, a lower level than normal for the time of year. They are currently 48 per cent full on average, according to GIE.
European gas prices soared after the joint US-Israel attacks on Iran at the end of February, but they have been relatively stable recently even before Washington and Tehran struck an interim peace deal earlier this month. This has resulted in a different problem as the price at European gas hubs fell too low to lure LNG cargoes, typically from the US.
“We’re at a critical stage of the summer for Europe’s gas restocking plans,” said Natasha Fielding, an analyst at Argus Media. “While the announced US-Iran deal has pushed down gas prices and raised hopes for a flood of Mideast Gulf supply returning to the market, the longer we see constrained LNG supply, the lower start-of-winter European gas stocks will be and the bigger the chance of winter price spikes.”
European benchmark gas prices are trading at about €40 per megawatt hour (MWh), barely higher than before the US-Iran war began on February 28 and within a normal range for this time of year. Even when prices surged in the first few weeks of the war, they remained far below the €342/MWh peak reached following Russia’s invasion of Ukraine in 2022.
Refilling got off to a slow start in April, as high summer gas prices gave companies little incentive to restock.
The European Commission on Sunday said that “current storage levels do not raise immediate concerns for energy security”, adding that “80 per cent storage . . . is enough to secure winter supply”. Storage levels currently stand about 10 per cent below the pre-crisis average while EU gas demand has reduced by 17 per cent, the spokesperson noted.
The Commission has advised member states to fill storage facilities to 80 per cent, or as low as 75 per cent, to ease pressure on prices. The nonbinding target has stood at 90 per cent in recent years.
“We need a high level to make sure that we are ready for next winter [but] we want to do it in a way that it doesn’t lead to increases in prices in the short term,” EU energy commissioner Dan Jørgensen said on Friday.
The European storage situation could change if a wave of LNG supply hits global markets.
Empty Qatari LNG carriers started heading back towards the Gulf almost immediately after the preliminary peace deal was signed. Qatar’s Prime Minister Sheikh Mohammed bin Abdulrahman al-Thani said this week that the country’s production would return to normal within weeks from all LNG facilities, except two units struck by Iran during the conflict.
However, analysts question the pace at which Qatari volumes will return to the market.
If the undamaged units at Qatar’s vast Ras Laffan LNG facility reach full capacity by the end of July, European gas storage would probably end the restocking season 74 per cent full, Goldman Sachs commodities analyst Samantha Dart estimated in a recent note. If that happens a month later, European storage facilities could enter the winter only 70 per cent full, she said.
Shipping through the Strait of Hormuz faced a setback after a vessel was struck in the waterway on Thursday. Whether flows will continue after the end of the 60-day ceasefire extension agreed by Washington and Tehran remains uncertain. This puts Europe in a difficult position, analysts warn.
Commercial speculators are increasingly betting on higher winter prices in the futures and options markets, said Energy Aspects in a note.
Tom Marzec-Manser, director for European gas and LNG at Wood Mackenzie, said that although gas prices may fall further in coming months as more LNG shipments leave the Gulf, he expects “prices to go back up again as we move into winter and it will create risks, particularly in a cold weather scenario” at the start of 2027.
The EU’s plan to ban Russian LNG, which currently accounts for about 14 per cent of Europe’s total LNG imports, completely from January 1 also raises the prospect of a gas crunch during the European winter.
