Gasoline reserves in Europe are running out and prices could exceed 100 euros

Europe is struggling to fill its natural gas reserves before winter, raising the risk that competition with Asia for supply will push prices above 100 euros (about $117) per megawatt-hour for the first time since its energy crisis four years ago.

European benchmark Dutch TTF futures rose above 68 euros per megawatt-hour on Tuesday, the highest level since early 2023, before declining slightly.

A cold winter combined with continued supply constraints could push prices to between 90 and 120 euros per megawatt-hour, Tancrede Fulop, senior equity analyst at Morningstar, told CNBC.

Analysts at Goldman Sachs said in a note published Sunday that if Middle East LNG exports “normalize only gradually through 2027,” natural gas futures would need to rise above 100 euros per megawatt-hour to curb Asian demand enough for Europe to manage its storage levels through the winter.

The concern for Europe is that, for now, its gas inventories are historically low.

Disruptions to shipping through the Strait of Hormuz have sharply restricted LNG exports from key Gulf producers such as Qatar during Europe’s gas storage replenishment season.

Meanwhile, the continent’s sweltering summer has boosted demand for air conditioning and other energy-intensive appliances at a time when demand for gas, widely used for Europe’s heating and cooking needs, naturally falls. Gas accounts for around a sixth of EU electricity generation.

Weather conditions have also reduced the supply of alternative energy sources. The heat has caused a drop in nuclear generation, with power plants forced to close or reduce production across the region, while wind power generation has been weak over the summer.

That has left the European Union’s gas reserves at around 63%, according to data from Gas Infrastructure Europe, one of the lowest levels on record for this time of year and about 18 percentage points below the five-year average.

“Europe is currently on track to enter winter with an inadequate storage cushion against the late winter cold, particularly as the amount that can be withdrawn from storage on a peak demand day decreases the emptier the storage becomes,” Matt Drinkwater, director of European Gas at Energy Aspects, told CNBC by email.

There is a possibility that the strengthening El Niño weather phenomenon will create a mild early winter in Northeast Asia, reducing demand, Drinkwater said. But “it also increases the risk that the end of winter will be colder than usual,” he added.

A crucial variable is whether significant volumes of LNG from the Middle East return before winter.

Crude oil and natural gas futures fell on Wednesday on expectations that Iran and Oman will reach a deal to ensure safe transit through the Strait of Hormuz.

A significant recovery in Middle East LNG exports would mean that while Europe is likely to enter the winter with “uncomfortably low stocks,” the region could preserve more of its inventories for colder weather in January and February, Drinkwater said.

But little is certain given the volatile geopolitics surrounding the vital commercial waterway.

If Middle East LNG flows do not return to high levels before winter, Europe would face very high gas prices, higher consumer bills and, in the worst case, limits on industrial gas consumption, Drinkwater said.

Competition with Asia for LNG cargoes will also remain intense because global supply growth is limited over the next 12 months. New developments in Qatar are not expected to reach full capacity before the second half of 2027, according to consultancy Wood Mackenzie.

The firm described Europe as “approaching energy crisis territory” with few short-term alternatives for its gas needs, just as the deadline for a ban on all Russian LNG imports approaches in early 2027.

At current prices, Europe maintains a slight lead over Asia in attracting cargoes of flexible LNG from the U.S., Morningstar’s Fulop said, after taking into account the higher costs of shipping those supplies to Asia.

But Europe will need much more American LNG if other supplies remain limited.

“We estimate that Europe would need around 64 [billion cubic meters] of US LNG, equivalent to approximately 77% of total US exports,” Fulop said.

“Attracting such an unusually high share would require Europe to offer materially greater netback than Asia. At the upper end of the range, high prices would also begin to balance the market through industrial demand destruction and fuel switching,” he said.