Europe could face a critical shortfall in natural gas stocks if shipping disruptions through the Strait of Hormuz persist for another 1-3 months, senior executives at Norwegian energy giant, Equinor ASA (NYSE:EQNR), have warned. Europe entered the current summer refill season with severely depleted gas reserves, with gas stores only 28% full following a prolonged winter. Europe’s storage levels are currently at 35-37%, significantly below the 50% seasonal norm, increasing the risk that the continent will miss its usual 90% target at the beginning of the next winter heating season.
The European Union requires member states to maintain robust storage fill levels, typically targeting an 80% to 90% capacity by early winter. A combination of factors has made filling Europe's largest storage hubs a daunting task heading into the latter half of the year. First off, heavy withdrawals during winter, driven by peak household heating, coupled with a spike in industrial power demand, depressed natural gas storage levels in Northwest Europe to below 30%, roughly double the EU's overall storage deficit. Gas levels in the Netherlands, Germany, and France fell to critically low levels before spring even began: Dutch reserves plunged to just 5.8% by the end of winter, marking the lowest level in a decade; storage levels in Germany dipped to ~20% while those in France hovered around 27% by the time spring kicked in.
Second, distorted pricing and inverted seasonal price curves have contributed to Europe’s gas crisis, with an unusual market structure wherein summer spot prices are higher than winter contracts stalling necessary storage replenishment. Dutch TTF seasonal spreads have remained in negative territory to the tune of ~€ 1.3/MWh, with the unusual backwardation disrupting the traditional dynamics of injecting gas during the cheaper summer months and withdrawing it during the colder, high-demand winter season.
Europe has also been facing an LNG squeeze, with competing global energy demands and disruptions to major LNG facilities due to the Middle East conflict making replenishing stocks highly costly. Delays and infrastructure damage at key facilities particularly in Qatar combined with a phase-out of Russian LNG have intensified global competition for spot cargoes, particularly against high demand in Asia. The inverted curve has also been partially driven by expectations of an influx of new global LNG capacity later in the year, coupled with near-term supply concerns.
EU member countries have responded to the distorted pricing mechanism using various approaches. In Italy, regulators such as ARERA and transmission system operators like Snam have introduced financial compensation schemes that allow traders to bid in auctions where the market manager pays the difference between the summer and winter gas prices at the Virtual Trading Point (PSV) to ensure storage targets are met.
The situation is different in Germany, with Europe’s largest economy having historically avoided direct state subsidies to force injections, instead relying on legal mandates and market-balancing tools. Germany's Bundesnetzagentur enforces strict statutory filling targets for natural gas storage to guarantee winter supply security. Shippers and network users are legally obligated to meet specific inventory levels, and compliance is driven by market mechanisms, capacity auctions, and strategic instruments managed by Trading Hub Europe GmbH (THE). To cover costs associated with purchasing, injecting, and managing strategic gas reserves, THE utilizes a regulatory storage neutrality charge. This levy, historically applied to exit flows and network points, helps recover the costs of state-mandated storage measures.
Despite the difference in domestic incentives, both nations are subject to EU-wide regulations, requiring minimum storage levels historically targeting 80-90% of maximum capacity ahead of the winter heating season. While Italy has leaned into financial support, Germany relies on regulatory mandates, with the goal of passing storage-filling obligations onto active wholesale market participants.
Equinor has warned that whereas a quick resolution could allow for Europe to attain a manageable 75% storage level by the end of the injection season, a 1–3 month blockage would make the situation highly critical, potentially driving TTF prices toward €90/MWh. A spike in gas prices is expected to drive market corrections, including a projected 10 billion cubic meter reduction in gas-to-power demand and increased industrial fuel switching.
That said, Europe’s current gas crisis is nowhere near as dire as the situation it faced when Russia invaded Ukraine a couple of years ago. Indeed, Germany is going ahead with the privatization process for Uniper following the company's multi-billion-euro rescue during the 2022 energy crisis. Under the European Commission state aid rules that approved Berlin's 2022 bailout, Germany is legally required to reduce its shareholding to a maximum of 25% plus one share by the end of 2028. Uniper's finances have improved dramatically following a massive €40 billion net loss in 2022 triggered by the cutoff of Russian Gazprom gas. The utility won major arbitration damages, and has already begun repaying government aid. This financial health makes it highly attractive to private markets. Headquartered in Düsseldorf, Uniper is one of Germany’s largest gas importers and a key player in Europe's gas trading and storage networks.
By Alex Kimani for Oilprice.com
