Europe's natural gas market is facing renewed winter supply risks as slower storage injections and mounting geopolitical tensions threaten to erode the continent's energy cushion ahead of the heating season, RBC Capital Markets strategists said in a note Thursday.
Gas storage facilities across Europe are filling at their slowest pace in years, with injection rates running below the 10-year seasonal average.
RBC analysts said that inventories are currently about 54% full, below the 64% level recorded at the same point in 2022, when Europe was still grappling with the fallout from the energy crisis triggered by the Ukrainian war.
The weaker storage position contrasts with last year, when European inventories stood at about 65% full by the end of July and continued building to reach a peak of 83% in November, exceeding the European Union's target of at least 80%.
RBC analysts said the market's biggest swing factor remains the timing and pace of a recovery in Qatari liquefied natural gas exports, which could provide much-needed flexibility to global LNG balances.
However, renewed tensions in the Middle East have increased uncertainty over when additional supply will return and whether shipping routes can operate normally.
The risk premium has risen following an escalation in regional hostilities, including an LNG tanker incident and growing concerns over the security of key maritime routes.
RBC said that with the Strait of Hormuz facing heightened risks, market participants have become increasingly cautious about the reliability of future LNG flows.
The consultancy said that European benchmark gas prices have responded sharply.
Dutch TTF prompt prices have climbed above 60 euros ($68) per megawatt-hour, equivalent to $20 per million British thermal units, while forward prices have moved into backwardation, a market structure where near-term prices exceed future contracts.
RBC said the steep backwardation is reducing the commercial incentive for companies to inject gas into storage, further complicating efforts to rebuild inventories.
The combination of lower storage levels, weaker injection economics and uncertainty around LNG availability is leaving Europe with less room for disruption heading into winter.
RBC analysts said that storage has less buffer to absorb supply shocks, adding that renewed geopolitical disruptions could leave the European market exposed during periods of peak demand.