Europe Faces Rising Natural Gas Prices Amid Storage Concerns
Just as Europe seemed to be recovering from its energy crisis, natural gas prices have surged once more, increasing by 30% in the past month. This spike is attributed to falling storage levels, frigid temperatures, and ongoing supply uncertainties. With current storage levels at their lowest for this time of year since the harsh winter of 2022, a pressing question looms: can Europe replenish its reserves in time for the next winter season?
Why Is Europe Experiencing Low Gas Supplies?
Natural gas futures on the Dutch Title Transfer Facility (TTF), the benchmark for European gas prices, climbed to €59 per megawatt-hour on Tuesday, marking a two-year peak. The persistent cold weather has caused households and businesses to deplete gas supplies far quicker than anticipated. According to data from Gas Infrastructure Europe, the average storage level across the European Union has plummeted to 48.48%, significantly below the expected figures for this time of year.
Among EU countries, France stands out with the lowest storage rate at just 29.85%. Meanwhile, both the UK and Ukraine, which are outside the EU, are grappling with even lower levels—25.73% and a mere 9.33%, respectively. Conversely, Portugal has filled its storage to capacity, while Sweden and Spain boast healthier reserves at 88% and 69%, respectively. “The recent price rally is driven by colder-than-average temperatures, diminished renewable power generation, and low inventory levels,” stated ING commodity analysts Warren Patterson and Ewa Manthey.
Stockpiling Gas Becomes Increasingly Costly
Typically, natural gas traders would focus on refilling storage during the spring and summer months when demand is relatively low and prices are more manageable. However, this year, market conditions are making this strategy more expensive than usual. “European gas balances have turned out much tighter than we anticipated,” commented Samantha Dart, a commodity analyst at Goldman Sachs. “To effectively rebuild storage this summer, prices will need to not only stay above coal generation costs but must rise even higher to entice more liquefied natural gas (LNG) into Europe.”
Goldman Sachs projects that LNG imports must be 8% higher than initially thought if Europe aims to restore storage levels to at least 85% by October. Recent data on LNG imports for February suggests that this goal could be achievable—assuming prices remain close to €50 per megawatt-hour (approximately $15.10 per million British thermal units). However, there are significant risks for gas prices to escalate. If gas demand for power generation continues to be unusually high or if Asian buyers increase their LNG imports, European prices could surge even further—potentially hitting €84 per megawatt-hour, which would represent a 68% increase over Goldman’s baseline forecast.
Germany Weighs Subsidies to Encourage Storage
Germany, the largest economy in the EU, is currently contemplating financial incentives to assist gas suppliers in replenishing their storage. According to a report from Bloomberg, Trading Hub Europe GmbH (THE), which oversees the gas market in Germany, is engaged in discussions with policymakers about a potential subsidy scheme designed to promote stockpiling. THE’s managing director, Torsten Frank, noted that no decisions have been finalized yet, emphasizing that discussions with the ministry and regulator are ongoing. He indicated that once the framework is established, further conversations would ensue regarding the timing of the initiative’s launch.
This initiative is part of a broader EU strategy aimed at ensuring energy security. Since Russia reduced its pipeline gas supplies in 2022, Brussels has enacted strict storage mandates—requiring member states to fill reserves to at least 90% by November. These mandates are set to expire at the end of this year, but the European Commission is likely to propose an extension.
Could Russian Gas Make a Comeback in Europe?
One significant variable that could alter the landscape is the potential return of Russian gas supplies. While the EU has drastically cut its dependency on Russian energy, some gas continues to flow through Ukraine. Should a peace agreement between Moscow and Kyiv be reached, it could pave the way for increased shipments, thereby potentially driving down prices. Goldman Sachs estimates that if Russian pipeline flows were to revert to pre-war levels, European gas prices for the summer of 2025 could decrease between 36% and 56% below the current projection of €50 per megawatt-hour. However, if supplies remain restricted at the 2023-24 levels, the impact would be minimal, yielding only a 17% reduction in price forecasts for 2026.
What Lies Ahead for Europe?
For the time being, all attention is focused on weather patterns, LNG imports, and policy decisions emanating from Brussels and Berlin. A colder-than-expected spring could further deplete storage, while a significant uptick in Asian LNG demand may render restocking even more costly. Conversely, if temperatures stabilize and renewable energy output rises, prices might ease. One thing is certain—Europe’s energy security remains a precarious balancing act. As traders and policymakers navigate another tumultuous year, the race to replenish gas reserves has only just begun.
