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Europe Likely to Face Next Winter With Inadequate Natural Gas Reserves, Says WoodMac

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Europe's natural gas storage levels are at a historic low as the closure of the Strait of Hormuz raises global competition for restricted supplies of gas, raising the risk of inadequate supply next winter, analysts at Wood Mackenzie said in a report on Monday.

Wood Mackenzie said that pressures are building in the global gas market, with no expectation that major LNG producer Qatar can return to full capacity before H2, 2027.

The analysts' best case scenario, based on Qatar instead reaching full capacity by the end of September, is for European storage to reach 75% at the most by Nov. 1.

That would be 15 percentage points below the five-year average of 90%. Should the Strait of Hormuz remain closed for another two months, then storage would be below 70% by Nov. 1.

Under the latter scenario, gas prices would likely climb and some emerging Asian countries would resort to demand destruction. Gas is currently more sensitive to the disruption in the Middle East than crude oil, Wood Mackenzie said.

"Low European inventories, strong Asian demand and limited new LNG supply growth almost guarantee elevated prices through this winter and into 2027" said Massimo Di Odoardo, vice president of gas and LNG research at Wood Mackenzie.

Currently, gas reserves are about 54% full across Europe, the note said, adding that the LNG market may only return to equilibrium from 2028.

While the scenario is not as severe as in 2022, Europe is still "approaching energy crisis territory," the note said, with alternatives limited amid a phase-out of imports from Russia.

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