European Gas Hits 3-Year High With Winter Storage at 13-Year Low

European natural gas prices climbed to their highest level in over 3 years, as renewed US strikes on Iran deepened concerns over prolonged disruption to energy flows from the Persian Gulf.

Europe’s benchmark, Dutch front-month futures, surged to 73.85 euros per megawatt-hour in early European trading. It has gained roughly 25% over the past month. At press time, it stood at 72.2 euros.

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Storage Shortfall Leaves Europe Exposed

The front-month contract has not traded this high since the end of 2022, according to the Wall Street Journal. The rally reflects a supply problem that predates this week’s escalation.

EU gas stocks were 63% full in the final week of August. That sits well below the 80% average for late August in recent years.

Storage operators normally refill throughout the summer, when both demand and prices are lower. Gas analyst Greg Molnar said continued injection at the current pace could leave EU gas storage at just 72 bcm. 

That would put inventories 20%, or 19 bcm, below the five-year average. It would also mark the lowest storage level since 2013.

“Low storage levels are naturally increasing the risk of heightened winter price volatility,” he said.

Energy Costs Reach Consumer Prices

The shock has already landed in the eurozone inflation data. Inflation rose 3.3% in the year to August, up from 2.9% in July. Energy inflation drove the move, accelerating to 14.3%. Core inflation eased to 2.4%.

Escalation around the Strait of Hormuz has also clouded prospects for a recovery in regional liquefied natural gas (LNG) exports. Roughly 20% of global LNG shipments cross the waterway.

Analysts at ING said Europe currently outbids Asia for cargoes once shipping costs are counted. However, they expect competition between the two regions to intensify if Qatari volumes remain absent through year-end.

Goldman Sachs analysts said the benchmark may need to move above 100 euros per megawatt-hour should Middle East exports normalize only gradually through 2027. Meanwhile, Morningstar analyst Tancrede Fulop told CNBC that a cold winter could drive prices into the 90-120 euro range.

The squeeze is spilling into risk assets. Asian equities slid after strikes on Iran, while Bitcoin (BTC) reacted to the same escalation.

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