Europe's Gas Storage Crisis: A Winter of Higher Prices Looms

Europe's gas storage levels are alarmingly low, heading into winter with only 57% of capacity filled. This is a significant drop from last year and the five-year average, with Germany in an even tougher position at just 46%. The shortage is due to weak refill season injections, which totaled 325 TWh between April and July - 11% below the five-year average and 18% lower than the same period last year.

The problem isn't just slow injections; Europe started from a much weaker position. Storage was already more than 80% full by the end of July 2024, but this year it's only at 57%. To get storage levels to even 80% by November, Europe would need over 140 LNG vessel arrivals every month between August and October - an unlikely scenario.

Montel estimates that Europe received a shortfall of around 72 cargoes, equivalent to 72 TWh of gas, between May and July. This is due in part to the redirection of US LNG towards Asian buyers, who are willing to pay more for it. In fact, European LNG imports have fallen sharply since the Middle East conflict, with deliveries to China, Japan, South Korea, Taiwan, and India tripling between March and July.

The result is that Europe may need to pay significantly higher gas prices - potentially above €60/MWh - to attract enough supply to refill its storage sites. This could threaten the business model of some storage facilities, which are already operating at extremely low utilisation rates.