Europe Gas Buffer at Risk as Levels Hit 18-Year Seasonal Low

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(Bloomberg) — European gas-storage levels fell to their lowest for this time of year in almost two decades after the war in the Middle East drove up prices and stalled winter stockpiling, leaving governments with a growing dilemma as the heating season approaches.

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Utilities and traders typically buy natural gas during the summer, when prices are lower, and store it in depleted fields and salt caverns for use in winter. But stubbornly high costs have made that uneconomical this year. As a result, European Union inventories were only 57.1% full at the start of August. That’s the lowest share of utilized capacity for this date in records going back to 2009.

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With just about two months before the cold season begins, governments — especially in powerhouse Germany — face mounting pressure over whether to intervene to encourage costly storage injections. Although prices steadied on Monday, they are still about 80% above prewar levels and remain higher than winter contracts, leaving little incentive for hoarding the fuel.

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“The question now is: are we going to see some market intervention? Storage levels remain very low in Belgium and the Netherlands, as well as in Latvia, Bulgaria, Germany, and Slovakia,” Anne-Sophie Corbeau, a researcher at Columbia University’s Center on Global Energy Policy, said in a LinkedIn post.

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The war has cut off about a fifth of global liquefied natural gas supply, with Asian buyers snapping up available cargoes to replace lost fuel and diverting shipments away from others. European LNG imports have been dropping since April, with Italy — which offers storage incentives and has stricter filling requirements — a notable exception.

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In absolute terms, European inventories stood at 645.4 terawatt-hours at the start of August, according to Gas Infrastructure Europe. That’s the lowest for this time of year since 2021, when Russia’s cuts to pipeline supplies triggered Europe’s worst energy crisis in decades.

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Net storage injections also remain subdued. Volumes added last month were 21% lower than a year ago, making it the weakest July for stockpiling since 2020.

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Analysts have warned of increasing winter risks if global gas supplies remain tight. While physical shortages are still considered unlikely, Europe may have to pay significantly more to attract cargoes, with Goldman Sachs Group Inc. seeing prices climbing as high as €100 a megawatt-hour in December, almost double the current levels and back to rates last seen just after the historic energy crunch.

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Dutch front-month futures, Europe’s gas benchmark, traded slightly lower at €58.64 a megawatt-hour by 11:57 a.m. in Amsterdam. They dropped 6.3% earlier after US President Donald Trump said another round of talks with Iran would begin Monday, boosting optimism they could reach a deal to reopen Strait of Hormuz. 

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“The underlying fundamentals remain quite worrisome from a European perspective,” said Arne Lohmann Rasmussen, chief analyst at Global Risk Management. “After the initial selloff today I expect focus to return to fundamentals including inventory levels.”

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—With assistance from Priscila Azevedo Rocha.

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(Updates prices in penultimate paragraph.)

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