European gas price at four-year high, storage facilities still not full

The benchmark price of European natural gas has risen to a level not seen since December 2022, as the Middle East conflict continues to hamper the shipment of Qatari liquefied natural gas, and cooler weather has already forced several countries to draw on stored reserves. The next-month futures contract for the Dutch TTF gas hub opened around three percent higher on Friday, October 23, trading at about €92.30 per megawatt-hour in the morning, after already breaking through the €90 level the previous day.

Behind the price increase lie both import uncertainty and lower-than-usual storage reserves. Citing data from Gas Infrastructure Europe, OilPrice reported an EU storage fill rate of 74.62 percent, compared with the roughly 86 percent five-year average typical for this time of year — a shortfall of more than eleven percentage points, leaving less room to maneuver should winter bring prolonged cold or further supply disruptions.

According to Warren Patterson and Ewa Manthey, commodity strategists at ING, the European gas market remains extremely sensitive to developments in the Persian Gulf, and it is increasingly likely that a significant share of LNG from the region will be missing from the market for much of the Northern Hemisphere winter. The bank's mid-October analysis noted an approximately eighty percent year-on-year drop in the region's LNG traffic, which is also sharpening the European-Asian competition for available shipments. Lower storage levels alone do not mean Europe would be short by a quarter of its total winter needs: storage facilities supplement the continuous pipeline and seaborne deliveries, especially during periods of high consumption. However, the smaller reserve increases dependence on winter imports, the volume and price of which are now also influenced by the safety of shipping through the Strait of Hormuz. As a result, the risk is already showing up in wholesale quotations at the start of the heating season. The situation in the Middle East has also made itself felt in the oil market: Brent crude rose to $115 a barrel on Friday — so Demented Donald's brilliant idea of giving Russia free rein on diesel and crude oil exports, what a surprise, didn't pan out.

Ugar