Europe is approaching the end of summer with reduced natural gas reserves, threatening to intensify the global struggle for supply. According to Bloomberg calculations, the region still needs more than 100 terawatt-hours of gas, worth more than 7 billion euros at current prices, to reach even its minimum storage target of 75%. Achieving this goal would require an injection pace never seen at this time of year since the 2022 energy crisis, following Russia's invasion of Ukraine, risking pushing winter prices above 100 euros per megawatt-hour, according to Goldman Sachs, Rystad Energy and Morningstar.
The conflict in the Middle East has driven up short-term gas prices and made storage uneconomical, leaving some countries, particularly Germany, struggling to meet even the recently relaxed storage targets. Prices are more than double what they were a year ago, and if disruptions persist through winter, Europe may have to pay even more to ensure scarce shipments reach its cities. Qatar, typically the world's second-largest exporter, would need about 12 weeks to fully restart LNG production, excluding two production lines damaged by Iranian attacks.
One risk is that Europe will again exclude poorer countries, such as Pakistan and Bangladesh, due to high prices, provoking a repeat of the power cuts and factory shutdowns that occurred during the 2022 energy crisis. Although Europe is not expected to face physical shortages, since it can afford to pay for gas, this does not mean it is immune to economic impact. Bond investors have already signaled that rising gas prices will accelerate inflation, forcing central banks to raise interest rates more aggressively than markets expect.
Gas price behavior will largely depend on weather conditions. The El Niño phenomenon could bring Europe a mild and stormy start to winter, although subsequent cold spells could rapidly increase demand for heating. Aggressive purchases from China, supply disruptions from Norway, or a late hurricane in the US could make the market even tighter. Analysts consider further price increases before winter to be quite likely.
