Europe faces at least another year of high natural gas prices, even if the conflict between the US and Iran ends and the winter turns out to be mild. The reason is record low stocks, which will have to be replenished next season.
European gas benchmark prices have risen by more than 150 percent since the beginning of the year. Disruptions to shipping through the Strait of Hormuz have blocked almost 20 percent of global liquefied natural gas exports from Qatar and the United Arab Emirates, with most of these supplies usually destined for Asia.
The US, Canada and Nigeria have increased their exports, but the loss of Middle Eastern cargoes has intensified competition between Europe and Asia. This has made it difficult to fill European gas storage facilities during the summer months.
Stocks remain below average
Analysts and industry representatives expect storage facilities in Europe to be between 75 and 78 percent full by November 1. This is about 10 percentage points below the average level over the past five years.
With normal winter temperatures, stocks in northwestern Europe could fall to around 20 percent by early April. If the Strait of Hormuz remains closed for a longer period, the pressure for new gas injections in 2027 will increase.
“Not only will there not be enough reserves for the coming winter, there is a risk that they will not be enough for next summer,” said LSEG analyst Yuri Onishkiv.Gas storage facilities typically provide between 25 and 30 percent of the natural gas used in the European Union in the winter. The rest must be supplied through pipelines and LNG supplies, mainly from Norway and the United States.
Risk of further price spikes remains
ABN Amro senior energy economist, Mutaz Altaghlibi, said Europe was not facing an immediate shortage but did not have sufficient operational reserves. According to him, any interruption in supplies could trigger a new price increase.
In a cold winter, stocks could shrink by 10-15 percent - a level that Altaglibi described as "extremely critical and difficult" for the next replenishment season. Analysts do not expect a repeat of the price peak of 2022, when European quotes exceeded 350 euros per megawatt-hour, but an increase of more than 100 euros per megawatt-hour is considered possible.
Consumers are likely to feel this year's wholesale price increase more strongly in 2027, as contracts with end customers are renewed after their fixed periods expire. In Germany, tariffs for new customers have increased by 55 percent - from 8 to 12.4 euro cents per kilowatt-hour, Verivox reported. Existing customers are expected to see increases of 10 to 20 percent when contracts expire.
In the UK, consultancy Cornwall Insight predicts that the price cap for households could rise by a further 16 percent in January. “We see no end to the volatility yet, and with gas supplies so low, the effects of the conflict with Iran could be felt for many months to come,” said Craig Lowry, chief consultant.
Supply will remain tight
European industry is already struggling to remain competitive. Even before the recent turmoil, gas prices in the European Union were about three times higher than in the United States.
Additional pressure on the market is expected from the EU's complete ban on imports of Russian liquefied natural gas, which is due to come into force in January 2027. According to ICIS analyst Andreas Schroeder, even a resolution to the conflict in the winter will not immediately eliminate the need for Europe to buy large quantities of gas to fill storage facilities.
Sources: bta.bg, au.investing.com, theguardian.com