Europe gas market faces prolonged price pressure as storage levels lag

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Europe gas market storage shortfall

Highlights

European gas storage is expected to reach only 75% to 78% by November 1, ten percentage points below the five-year average, heightening 2027 refill risks.
European benchmark gas prices have soared over 150% in 2024 due to Strait of Hormuz disruptions trapping 20% of global LNG, intensifying competition for cargoes amid increased U.S., Canada, and Nigeria shipments.
German new customer gas tariffs have jumped 55% to 12.4 euro cents per kWh in 2024, while the UK household energy price cap could rise another 16% in January, exacerbating industrial competitiveness pressures as EU gas prices outpace U.S. by threefold.

Storage shortfall extends supply strain

As reported by Reuters, analysts and industry forecasters expect European gas storage to be 75% to 78% full by November 1, around 10 percentage points below the five-year average. That leaves the region entering winter from a weaker position and raises the risk that refill demand will remain high into 2027.

European benchmark gas prices have jumped more than 150% this year after shipping disruptions through the Strait of Hormuz trapped almost 20% of global liquefied natural gas exports from Qatar and the United Arab Emirates. Although exporters including the U.S., Canada and Nigeria have increased shipments, the loss of Middle Eastern LNG has intensified competition for spot cargoes that might otherwise reach Europe.

LSEG analyst Yuriy Onyshkiv says northwest European reserves could fall to around 20% by the start of April under average winter conditions, and ABN Amro says a cold winter could push storage down to 10% to 15%. Senior energy economist Moutaz Altaghlibi says the region is not facing an outright shortage, but lacks a sufficient operational buffer, leaving prices vulnerable to any further disruption.

Higher bills and competitiveness risks

Storage usually covers 25% to 30% of winter gas use in the EU, which means the bloc still relies heavily on pipeline supplies and LNG, particularly from Norway and the U.S. Analysts say continued competition from Asia for LNG cargoes is likely to keep prices elevated, while a spike above 100 euros per megawatt-hour remains feasible even if the market does not return to the extremes seen during the 2022 energy crisis.

Consumers are likely to feel more of the wholesale rally in 2027 because retail contracts are often fixed before renewal. In Germany, Verivox says gas tariffs for new customers have already risen 55% this year, from 8 euro cents to 12.4 euro cents per kilowatt-hour, while existing customers are expected to face increases as contracts expire.

In the UK, consultancy Cornwall Insight forecasts the household energy price cap, raised to a three-year high in October, could increase by another 16% in January. Analysts also say high gas costs are already weighing on industrial competitiveness, with EU gas prices standing at about three times U.S. levels even before the latest supply disruption.

The policy debate is also intensifying as the EU prepares for a full ban on Russian LNG imports from January 2027. ICIS, Rabobank and BNP Paribas analysts say the market may still be underpricing Europe's future storage injection needs, even though stronger wind output and milder weather could temper demand, and some expect a return to pre-conflict market conditions only by 2028.

Diesel markets stayed under pressure as uncertainty around a potential temporary U.S. sanctions waiver for Russian diesel and conflicting ceasefire claims kept traders on edge. Our earlier article noted that alongside rising Middle East tensions and crude hovering above $100 a barrel, persistent energy inflation risks were becoming a key focus for investors and policymakers heading into major macro events.

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