Gas: Despite the truce in the Middle East, Europe is slow to replenish its stocks

Gas prices have fallen much less rapidly than oil prices since the start of talks between the United States and Iran in mid-June, a sign of a market that remains more strained, Le Monde notes.

With the truce in the Middle East, can Europe stop worrying about its gas supplies? This is far from certain, judging by the level of its gas reserves. Since April 1st, as every year, European Union (EU) countries have been filling these reservoirs in anticipation of winter and its increasing heating needs. On Sunday, July 5th, these reserves were only 49.7% full on average, less than at the same time last four years. More worryingly, they could finish the filling season at around 75% by the end of October, according to various estimates, a level close to historical lows. The war in Iran has complicated matters for European countries. For months, the blockade of the Strait of Hormuz prevented Qatar from exporting its liquefied natural gas (LNG), representing a fifth of global supply. As a result, the price of the gas soared, particularly in Asia, the main customer for Qatari gas and therefore willing to bid higher to secure additional shipments. Consequently, "it is to this region that LNG is being shipped," says Anne-Sophie Corbeau, a researcher at the Center on Global Energy Policy at Columbia University in New York. According to data from S&P Global, European LNG imports declined in April, May, and June, including those from the United States, Europe's leading supplier of liquefied gas.

And competition could intensify further with Asia, where summer brings soaring temperatures and a surge in electricity demand. Peace remains fragile in the Middle East, and a return to normalcy is uncertain. Since the signing of a memorandum of understanding on June 17 between Washington and Tehran, LNG carriers have resumed transiting the Strait of Hormuz. However, “we are still far from the pre-war situation, when Qatar was shipping three cargoes a day,” notes Tom Marzec-Manser, director of the gas and LNG Europe department at the energy consulting firm Wood Mackenzie. The gas-rich emirate has asserted that it can restore most of its production within a few weeks. This is contingent on the situation in the strait being “normalized,” Qatari Prime Minister Mohammed bin Abdulrahman Al Thani clarified in an interview with the Financial Times on June 24.

"The lesson of Iran"

It must be said that gas markets do not have the same safety valves as oil markets: no bypass pipelines to ship Middle Eastern cargoes other than through the Strait of Gibraltar; nor any strategic reserves in consuming countries from which to draw in case of supply shortages. European storage facilities, stocked by commercial operators, are essential for the daily consumption of businesses and households: in France, when temperatures drop, they cover about a third of national demand.

According to the consulting firm Wood Mackenzie, European sites could be 76% full by the end of October, the lowest level in at least a decade. “And this estimate assumes that Qatar is exporting LNG normally starting today. If its production doesn't restart properly for another month, it will be closer to 72%,” predicts Tom Marzec-Manser. Some countries are further along, like France, where tanks are already nearly 50% full. But others are lagging behind, such as Germany (42.3%), the Netherlands (26.7%), and Belgium (23.7%). In Brussels, the aim is to reassure. A European regulation theoretically sets a target of 90% gas storage capacity for all member states.

The risk, however, lies more with prices. “If we continue on the current trajectory, there could be a rather abrupt awakening that could send them rising again,” says Anne-Sophie Corbeau. For the past three months, gas prices in Europe have remained far from the peaks, exceeding €300 per megawatt-hour (MWh), reached during the 2022 energy crisis. But since the truce, they have fallen much less rapidly than oil prices. The Dutch TTF futures contract, considered the European benchmark for gas, is still around €44 per megawatt-hour (MWh), a level well above that of the pre-conflict level of €32 at the end of February, on the eve of the first Israeli-American strikes in Iran.

A report published in April by the Bruegel Institute calculated that a gas price of €45 per megawatt-hour would mean a 20% increase in the EU's gas refill costs compared to the 2025 campaign. “From a historical perspective, this price is very high,” emphasizes Phuc-Vinh Nguyen, head of the energy center at the Jacques Delors Institute, recalling that before the war in Ukraine, prices hovered around €15 to €20 per megawatt-hour. “A few months ago, many were hoping for a return to normal, particularly in energy-intensive industries. But the lesson of Iran is that you can't develop any sense of security regarding gas: there's a risk premium associated with this energy source.”

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