Europe risks entering winter with the lowest gas reserves in 15 years

Europe may begin the new heating season with the lowest gas storage levels in at least 15 years, threatening higher prices for businesses and households.

The Financial Times reports this.

According to forecasts by consulting firm Wood Mackenzie, gas storage facilities will be only 76% full in October. According to Gas Infrastructure Europe (GIE) data, this would be the lowest fill level since at least 2011. The slow pace of replenishment is due to the war between the US and Iran, which halted liquefied natural gas shipments through the Strait of Hormuz.

After the winter, EU storage facilities began the refilling season at just 28% capacity, below the usual level for this time of year. According to GIE, they are currently averaging 48% full. In April, the refilling process was slow: high summer gas prices did not incentivize companies to make active purchases.

Gas prices in Europe rose sharply following the American-Israeli strikes on Iran in late February, but have remained relatively stable recently. European benchmark prices are hovering at around €40 per megawatt-hour — only slightly higher than before the US-Iran war began. Even during the sharp spike in the first weeks of the war, they remained well below the peak of €342/MWh recorded after Russia’s full-scale invasion of Ukraine in 2022. At the same time, the persistently low price level has created a different problem: it has proved too low to attract LNG cargoes, typically from the US.

“We are at a critical juncture of the summer for European gas storage refilling plans. While the announced agreement between the US and Iran has pushed gas prices lower and raised hopes for a significant return of Gulf supply to the market, the longer LNG supply remains constrained, the lower European gas inventories will be heading into winter and the greater the risk of a sharp price spike in winter,” said Natasha Fielding, analyst at Argus Media.

On Sunday, the European Commission said that “current storage levels do not raise immediate concerns about energy security,” adding that “80 percent of storage is sufficient to ensure supplies through winter.” A Commission spokesperson clarified that storage levels are approximately 10% below the pre-crisis average, while gas demand in the EU has fallen by 17%. The Commission recommended that member states fill storage to 80% or even 75% to ease pressure on prices. The non-binding target in previous years had been 90%.

“We need to ensure high storage levels to be ready for the next winter, but we want to do it in a way that does not lead to price increases in the short term,” EU Energy Commissioner Dan Jørgensen said on Friday.

The storage situation could change if a wave of LNG supplies reaches global markets. Empty Qatari tankers began returning to the Persian Gulf almost immediately after the preliminary peace agreement was signed. Qatar’s Prime Minister Sheikh Mohammed bin Abdulrahman Al Thani said this week that production at all LNG facilities, except for two installations damaged during the conflict, would return to normal levels within a few weeks. However, analysts are questioning the pace at which Qatari volumes will return to the market.

Goldman Sachs commodities analyst Samantha Dart assessed two scenarios. If the undamaged facilities at Qatar’s Ras Laffan LNG complex reach full capacity by the end of July, European gas storage facilities will end the refilling season at 74% full. If this happens a month later, storage could enter winter at just 70% full.

Shipping through the Strait of Hormuz remains disrupted: a vessel was damaged in the waterway on Thursday. Whether supplies will continue after the expiry of the 60-day ceasefire extension agreed by Washington and Tehran remains uncertain. Energy Aspects noted in its research report that commercial speculators are increasingly placing bets on higher winter prices in futures and options markets.

Tom Marzec-Manser, head of European gas and LNG at Wood Mackenzie, expects that while gas prices may continue to fall in the coming months as LNG supplies from the Persian Gulf increase, “prices will rise again with the onset of winter, creating risks, particularly in the event of cold weather” in early 2027. An additional risk factor is the EU’s plan to fully ban imports of Russian LNG from January 1, which currently accounts for around 14% of total LNG imports to Europe.