European Gas Supplies Dwindling Ahead of Winter

European gas supplies are dwindling ahead of winter, raising concerns about potential price spikes. The EU's gas storage facilities are currently filled to around 63%, which is 18 percentage points below the five-year average and one of the lowest levels ever recorded for this time of year.

Futures on Dutch TTF, the benchmark for European gas, have briefly broken through 68 euros per megawatt-hour, their highest level since the start of 2023. Analysts estimate that prices could reach as high as 100 euros or around 117 US dollars per megawatt-hour.

Tancrede Fulop, a senior equity analyst at Morningstar, estimates that a harsh winter and continued supply constraints could push gas prices to the range of 90 to 120 euros per megawatt-hour. Goldman Sachs also estimates that prices may need to be above 100 euros per megawatt-hour if exports of liquefied natural gas or LNG from the Middle East only gradually return to normal until 2027.

European supplies have been squeezed after shipping disruptions through the Strait of Hormuz cut LNG exports from Gulf producers such as Qatar. The hot weather has also exacerbated the situation, increasing electricity demand and reducing nuclear production.