Europe faces need for LNG imports increase amid low storages
European gas storage is well below average with a few months to go before winter. But market signals are deterring refilling, and geopolitics are straining available supply.
Europe will need to boost LNG imports this summer in order to meet mandated gas storage targets, as facilities struggle to fill up amid a lack of price signals and with the debate around the future policy framework for storage intensifying.
EU storage facilities were just over half full in mid-July, data from Gas Infrastructure Europe shows, around 10% less year-on-year and significantly below the 5-year average.
The ongoing conflict in the Middle East is pushing up gas prices and narrowing the usual summer-to-winter price gap, thus weakening “the economic incentive for gas storage injections, which could further slow refilling,” European energy regulators agency ACER said.
Europe requires member states to hit a 90% storage target before the start of winter, a regulation implemented following Russia’s 2022 invasion of Ukraine. The regulation was later extended to end of 2027, with Member States allowed to reach the target over a two-month period.
More recently, the Commission also told Member States that they can deviate from the target in case of challenging market conditions down to 80%.
According to ACER, to meet the 90% target Europe would need to increase LNG imports by 13% year on year, although it could achieve 80% storage levels with 2025 LNG imports levels.
ACER estimated the extra filling bill could be EUR 10-15 billion in a EUR 50/MWh price scenario, with TTF front-month gas rising back to those levels in mid-July.
However, unfavourable summer-winter spreads, ongoing Middle East tensions and the phase out of Russian imports all contribute to reduce supply available for storage injection, it noted.
Modelling by Energy Flux, a gas and LNG-focused intelligence platform, suggest storages will reach around 73% full by November 1st if current rates continue over the summer, a level comparable to 2021.
“This should be manageable in a normal or mild winter given import flexibility and structurally lower demand.” Energy Flux’s founder and CEO, Seb Kennedy told Gas Outlook.
“The residual risk is the compounded tail: a cold winter coinciding with a dunkelflaute or a late-season LNG shock.”
“The period most exposed to sudden price spikes is Q1 2027, when storages are at their most depleted, liquefaction utilisation is maxed out, and weather-driven demand is at its spikiest.”
There is “still time to fill the storages for the winter with some public intervention,” Geoffroy Hureau, secretary general of international gas association Cedigaz told Gas Outlook.
“Each country has its own mechanism that has worked correctly prior to 2022,” he noted.
In an online post, he argued that price signals have been disappearing partly on the back of summer scarcity which pushes up prices and that the market should not rely on summer-winter spreads alone to support injection.
“If Europe wants storage for security of supply, it needs to treat it as insurance, not just as an arbitrage opportunity,” he said.
Policy uncertainty
Moving forward, it remains unclear what should replace the mandated storage targets.
Lobby group Eurogas called for storage mandates to be scrapped post-2027 and said it should be down to Member States to implement voluntary storage measures, thus avoiding a ‘one size fits all’ approach.
“Storage levels are an important indicator of the EU’s preparedness for winter, but they should not be viewed in isolation,” Andreas Guth, secretary general of Eurogas told Gas Outlook.
“Increasing the gas system flexibility is key” and ensuring access to “flexible LNG supplies should be a priority for Europe.”
Energy Traders Europe also called for mandated targets to be removed, while GIE, the gas infrastructure lobby group, reiterated the importance of storages and called for some form of economic incentive to be implemented.
“There are two important elements missing from the gas storage debate: coordination, and procurement,” Kennedy said.
“Nearly every EU member state has or is building its own national storage instrument (…) From 2027 there could be no overarching EU-level regulation to guide them.”
“Left uncoordinated, that patchwork fragments the single market and distorts cross-border flows.”
Instead of a common fill percentage, the EU role should be to set minimum standards that ensure security of supply objectives are achieved in the most cost-effective manner possible, he argued.
“Market signals matter, but they are not sacred,” Kennedy said.
“Intervention is justified when the market fails to provide resilience, but only if it is precise, competitive and service-specific.”
“Gas storage facilities should compete against batteries, demand-side flexibility and other rival service providers to ensure resilience is delivered at the lowest possible cost to consumers or taxpayers.”
“The goal is not to protect (gas storage) capacity holders or treat gas storage as a special asset class,” he continued.
“If competitive procurement is not possible, a regulated return may be justified to remunerate [underground gas storage] properly, but only for a specific function, not a blank cheque.”