Europe’s Gas Prices Are Finally Falling But Gas Storage Hits Lowest Level in 15 Years

TLDR

European natural gas prices rose Tuesday but are set for their first quarterly decline in more than a year. The Dutch TTF benchmark gained 2% to 43.44 euros per megawatt-hour, still on track for a quarterly drop. A ceasefire between the US and Iran helped normalize shipping through the Strait of Hormuz, easing supply fears. European gas storage sits at just under 48% capacity, well below last year’s level and the five-year average. The European Commission says storage levels do not currently threaten energy security for the winter ahead.

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European wholesale natural gas prices climbed on Tuesday. Despite the daily gain, the market is still on pace for its first quarterly fall in more than a year.

The front-month Dutch TTF contract, the main European benchmark, rose 2% to 43.44 euros per megawatt-hour. That puts it on track for its first quarterly decline in six quarters.

Dutch TTF Natural Gas Calendar (TTF=F)

Britain’s wholesale gas contract also gained 2%, reaching 104.57 pence per therm. It is heading toward its first quarterly drop in five quarters.

What Caused the Price Swings

Prices spiked earlier this year during a military conflict involving Iran. The fighting raised fears about energy supply routes through the Middle East.

Attacks on ships last week briefly slowed traffic through the Strait of Hormuz again. The United States and Iran are scheduled to meet in Doha today for further talks.

The Strait of Hormuz carries about one-fifth of the world’s liquefied natural gas supplies. Any disruption there tends to push gas prices higher.

A ceasefire reached earlier this month allowed maritime traffic to resume more normally. Delayed LNG shipments from Qatar and the United Arab Emirates have started moving again toward international markets.

Global crude oil prices have also returned to levels seen before the conflict began. That removed some of the support that had been keeping European gas and electricity prices elevated.

Storage Levels Remain a Concern

Even with the broader price decline, traders say storage shortages could limit how far prices fall. European storage facilities are currently just under 48% full.

That is down from 56.2% during the same period last year. It also falls below the five-year average injection level of 61%.

A Financial Times report citing Wood Mackenzie said European Union storage may finish the refill season only about 76% full. That would mark the lowest peak storage level since at least 2011.

The shortfall stems from the Iran conflict, which blocked LNG shipments through the Strait of Hormuz. Reduced production in Qatar and the United Arab Emirates also played a role.

European storage sites started the injection season only 28% full. Average levels across Europe currently stand near 48%.

The European Commission said Sunday that current storage levels do not pose an immediate concern for energy security. It noted that filling storage to 80% is sufficient to cover winter needs.

A commission spokesman said storage is roughly 10% below pre-crisis averages. He added that gas demand across the EU has fallen about 17%.

The commission has recommended member states fill storage to at least 75% to 80%. In past years, the nonbinding target had been set at 90%.

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