Key Takeaways
European natural gas prices are on track for a weekly gain of nearly 2 percent, holding below 50 euros per megawatt-hour as supply tightness from seasonal maintenance and underlying market structure complicates efforts to build inventories ahead of winter. The benchmark Dutch TTF front-month contract traded at 48.57 euros a megawatt-hour in afternoon trading, down 1.7 percent on the day but up for the week.
“If the war stopped tomorrow, with free flow to the Strait happening quickly, we could come to an acceptable, but tight storage level of 75 percent, but if the closure continues for one to three months, it could become critical,” Helle Ostergaard Kristiansen, Equinor’s Senior Vice President for Gas & Power Trading, told Reuters.
The current market tightness is exacerbated by numerous major gas facilities, including pipelines from Europe’s largest supplier, Norway, undergoing seasonal maintenance. This has sharply slowed storage injections in recent weeks. Gas caverns across Europe are currently just 35 percent full, well below the seasonal norm of around 50 percent, according to data from Gas Infrastructure Europe. This leaves a significant gap to fill to reach the European Union-imposed 90 percent storage target before winter.
The situation puts market participants in a difficult position, as the current price structure, with summer deliveries fetching a premium over winter contracts, makes stockpiling uneconomical. Analysts say this dynamic must shift, either through government intervention or price signals, to ensure energy security. “We saw that in 2022, when the governments imposed regulation on storage filling... it was very costly for them. So the market itself can probably balance the situation through price signals,” Peder Bjorland, Equinor's vice president for gas trading, said at the Flame energy conference. He noted that elevated prices around 60-70 euros per megawatt-hour could reduce gas-to-power demand by 10 billion cubic meters, helping to rebalance the market.
The urgency to build a sufficient gas buffer over the summer is growing. The EU’s 90 percent storage mandate is designed to prevent a repeat of the energy crisis that gripped the continent, but achieving it this year is proving problematic. The current 35 percent inventory level is a major concern for policymakers and market watchers. The uneconomical arbitrage between summer and winter gas contracts means there is little financial incentive for traders to buy gas now and put it into storage, a situation that must be resolved to avoid a supply crunch later in the year.
Compounding the maintenance-driven tightness is the persistent geopolitical risk from the conflict in the Middle East. Executives at Norwegian state oil and gas firm Equinor (EQNR.OL) have warned that a disruption to shipping through the Strait of Hormuz lasting one to three months could push Europe’s gas situation from challenging to critical. European gas prices at the Dutch TTF hub had previously spiked to 74 euros/MWh in March, their highest since January 2023, reflecting the market’s sensitivity to supply threats. While prices have since moderated, the underlying risk of a sudden supply shock remains a key factor supporting the market.
This article is for informational purposes only and does not constitute investment advice.
