(Updates with Equinor statement from paragraphs 7 to 9.)
Senior executives at Norwegian energy company Equinor (EQNR) believe Europe could be staring at a 'critical' shortage of gas inventories if shipping traffic from the vital Strait of Hormuz conduit remains disrupted for one to three months from now, according to a Reuters report on Thursday.
European Union targets require member states to ensure gas storage reserves are at least 90% full before the onset of winter. To meet these targets, members need to increase their gas reserves during the northern hemisphere summer but lower supplies and distorted prices are slowing down efforts to build up reserves, the report said.
According to Gas Infrastructure Europe, EU gas storage levels remained below 37%, standing at 36.87% of capacity compared with 45.16% a year earlier.
While building up inventories for the next winter already appeared difficult in early March, there has been little progress since with winter gas prices curreltly lower than summer prices, the report said.
Equinor Senior Vice President for Gas & Power Trading Helle Ostergaard Kristiansen told Reuters that if the war stopped immediately and free flow through the Strait resumed quickly, storage levels could reach an acceptable, though tight, 75%. However, if the closure continued for one to three months, the situation could become critical, Kristiansen said.
According to Equinor Vice President for Gas Trading, Peder Bjorland, the market could likely correct the situation on its own through price signals. Higher gas prices could reduce gas use by encouraging a shift to coal, greater use of renewable energy, and lower fuel demand from industries, which could help restore balance in the market, he added.
In a statement shared with, Equinor said it expected the risks to increase, with much depending on when the Iran war will end with flows expected to take some time to normalize after that.
Europe's dependence on mild weather and strong renewable energy production is increasing and the situation is expected to get more challenging, the longer the continent waits to refill storage, the statement said.
"Forward prices are still lower than spot levels, meaning there are currently no commercial incentives to start filling the storages," the statement added. "If individual countries introduce strict storage requirements now, there is a risk that European countries will bid against each other to meet targets, thereby pushing prices even higher."
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