EU gas storage at record-low 57% as Iran war squeezes supply

European gas reserves hit a record low for the season, exposing the bloc to winter price spikes as the Iran war cuts Qatari LNG supply.

European gas storage fell to 57.11% of capacity on Aug. 1, the lowest for the date since 2011, as the U.S.-Israeli war on Iran cut off Qatari LNG through the Strait of Hormuz.

"If there is a very cold winter or an extended period of cold weather, then you might find that you have to do some sort of demand mitigation, higher prices, or else European markets would run out of gas," said David Lewis, senior research analyst at Wood Mackenzie.

Storage levels on the same date in 2021 stood at 57.28%, when the COVID-19 pandemic had depressed industrial demand. The current shortfall comes even after the EU relaxed its pre-winter storage target from 90% by November to 80% by December. Day-ahead prices at the TTF hub closed at $696 per thousand cubic meters on July 31, up from $626 in July and $532 in June, after surging to $744 on July 24 — the highest in three and a half years.

With the Strait of Hormuz closed since the war began in late February, roughly 20% of global LNG supply from Qatar has been removed from the market. Energy Aspects projects winter prices could range from €60 to €80 per megawatt hour if Hormuz traffic normalizes, but a scenario with no Qatari LNG and colder-than-normal weather could push average day-ahead prices to €110/MWh from November through March, leaving storage just 10% full by the end of March.

The storage deficit marks a sharp reversal from the 2022 crisis playbook, when Russia's full-scale invasion of Ukraine disrupted pipeline gas and prices hit record highs above €300 per megawatt hour. Europe has since cut gas consumption and expanded renewable capacity, but its shift toward globally traded LNG has introduced a new vulnerability: without fixed-price pipeline contracts, buyers must compete in a spot market where near-term cargoes cost more than winter delivery.

That dynamic has pushed the market into backwardation, making storage injections economically unattractive. "There is zero financial incentive to fill storage from market prices right now," said Jacob Mandel, research lead at Aurora Energy Research. Filling Europe's stock to 80% before winter would require injections at near-record rates achievable only through government intervention, he added.

Winter Prices Could Hit €110/MWh Without Qatari LNG

Analyst forecasts for pre-winter storage peaks range from 67% to 76% of capacity, well below the EU's 80% target. A Commission spokesperson said the target "is sufficient to secure winter supply and it is technically achievable," but analysts remain doubtful. Energy Aspects' Erisa Pasko said the shortfall will translate directly into consumer costs. "It will mean higher energy bills for this winter and also for the next winter," she said.

The supply squeeze extends beyond gas. Brent crude futures fell 0.5% to $79.08 a barrel on Thursday as investors weighed progress in Iran-Oman talks over reopening the Strait of Hormuz, while West Texas Intermediate declined 0.7% to $74.69. U.S. retail gasoline prices remain above $4 a gallon, compared with below $3 before the war began in February.

August LNG Imports Fall 7% as Asia Bids for Cargoes

Europe remains the world's largest LNG importer, but August deliveries are projected to fall 7% year-over-year to 6.9 million metric tons. Asian buyers, who also lost Qatari supply through Hormuz, are bidding aggressively for cargoes, forcing European utilities to pay higher premiums. Wind generation has offered limited relief, averaging just 10% of electricity demand since early August, down from 14% a year earlier.

The EU's total storage capacity stands at 109 billion cubic meters of active working gas, with withdrawals covering up to 30% of consumption in a normal winter. An EU ban on Russian LNG imports, set to apply in full from the end of this year, will further constrain supply options. The measure is intended to cut off revenues funding Moscow's war in Ukraine, but it removes another potential source of winter supply at a time when storage levels are already at historic lows.

This article is for informational purposes only and does not constitute investment advice.