EU Natural Gas – Lock and Reload

EU natural gas injections have trended below our forecasts since the end of April, with figures strikingly weak over the past week; daily injections have marked lows for those same calendar days in at least the last eight years. We cut once again our gas storage forecasts for Europe. Since our deep dive report on European natural gas in March, we have slashed our storage forecasts for the year by 4 percentage points, foreseeing a peak in November of 75% only — at the EU’s flexed lower target — and calendar 2026 to end at c57% full, only 3 percentage points higher than at end 2021: the year that marked the start of the last energy crisis.

There are downside risks to this storage forecast too. We have assumed normal summer temperatures this summer across Europe, and a warm December at c2°C above historical average. The high likelihood of El Niño this year is looking to create hotter than average temperatures this summer in key Asian importing countries, which would create further downside risks to our injections forecast via intensified competition for LNG cargoes. Temperatures in Europe could also be higher this winter, reducing draws, which we factor in.

European Natural Gas Storage Levels and 2026E Forecasts (% full)

Source: GIE AGSI. 2026E = Asymmetric Research estimates

Why Injections Have Declined

The sharp deterioration in injection rates since end April reflects, in part, the expiry of spot and short-term Russian LNG contracts under the EU phase-out regulation we outlined in our previous report. This was expected and was already embedded in our forecasts. Long-term contracts remain in place until January 2027. The loss is structural for the current injection season. On top of this, LNG price differentials have favoured Asia over Europe, while a continued sense of complacency from both European politicians and traders has meant no urgency to secure additional supply.

Why We Have Cut Our Forecasts

What has surprised us is the extent to which injections have underperformed even our already cautious expectations. Figures have been strikingly weak, particularly over the past week. We cut our projections on:

• Qatar normalisation far slower than expected: We had factored earlier that LNG flows from Qatar’s operable capacity would have fully resumed by the start of June. Now instead, we assume the Strait of Hormuz reopens mid-June, and that it takes a significant two months for flows to return back to normal. Qatar’s Energy Minister recently said that it could take a “minimum” of 2–3 months for shipments to normalise after Hormuz reopening. We think the market has overlooked the significance of this statement. As we have previously noted, even swift conflict resolution would not end the supply disruption immediately – tanker backlogs and slow restarts.
• Asian LNG competition intensifying: The price differential favours LNG flows to Asia rather than Europe. With El Niño expected to bring hotter than average temperatures in Asian LNG consuming countries, air conditioning and power generation demand will intensify competition for available LNG supply precisely during Europe’s critical injection window.
• Complacency: A continued and deepening sense of complacency in Europe from both politicians and traders. The market appears to be treating the current trajectory as easily manageable. We disagree.

Demand Destruction Would Be Less Pronounced

We should remind that winter 2021/22 was c1°C warmer than historical average; and at the time, the following summer contract was trading at c€70/MWh on average, even before the Russia–Ukraine war started. Storage at end-2021 was at c54%. Our forecast for end-2026 is c57%. The starting points are similar.

As we discussed in our earlier report, the 2021/22 crisis did not begin with the invasion. Complacency disappeared rapidly once the data became undeniable. Prices only collapsed back to lower levels by June 2023, after evident and accelerating demand destruction enabled meaningful storage refills. The important lesson is that the vulnerability was already embedded in the storage trajectory well before the Ukraine war started.

With European gas consumption having reset at lower levels since 2022 (down c60Bcm or 16% vs 2021), any price spike from current levels will likely have a less pronounced impact on consumption, and prices could remain elevated for longer periods. This is a key difference from the prior cycle — the demand destruction buffer is smaller.

[...]

This article was originally published on Asymmetric Research. Continue reading the full analysis — including our positioning, risk scenarios, and the additional supply risks the market is not pricing in — at asymmetricresearch.substack.com

***

These views represent our opinions only and are provided for informational purposes. This note does not constitute investment advice or a recommendation. Readers should conduct their own due diligence and consult professional advisers.