EU Gas Supplies Suffer Amid Iran Disruptions

The European Union is facing economic and political pressure due to low gas supplies. The region's natural gas storage facilities, which serve as a hedge against supply disruptions and price spikes during winter months, are only 69% full. This is below the average of 85% for this time of year over the past five years.

Germany and the Netherlands, which together have 35% of the EU's storage capacity, are particularly lagging behind in filling reserves. High energy prices, caused by disruptions related to the US-Israeli war against Iran, have deterred private companies from buying gas. Governments have been reluctant to insist on meeting national storage targets.

Analysts say that every month Europe delays restocking adds further pressure on prices as the peak winter consumption period approaches. The current economic situation is less critical than the energy shock caused by Russia's invasion of Ukraine in 2022, which prompted Europe to reduce its dependence on Russian gas and introduce storage fill targets.

However, governments are still hoping for a mild winter, and the European Central Bank (ECB) has raised interest rates. ECB officials have warned that rates could rise again if pressure from energy prices does not ease. Global oil prices have risen above $100 a barrel due to escalating conflict in the Middle East.

Gasoline is 24% more expensive across the EU than a year ago, while diesel is up 38%. Jet fuel costs have risen by over 100%. The TRNLTTFMc1 gas reference price is 81 euros per megawatt-hour, which is 150% higher than a year ago. Morgan Stanley estimates that prices could rise to as much as 100 euros per megawatt-hour.