Hope is not a plan. The war continues even as natural gas prices do not reflect the prospect of winter shortages.
Traders cling, inexplicably, to confidence in Trump administration pronouncements about the end of hostilities, putting off gas purchases in hopes of lower prices. Winter is coming.
Europe has put off buying natural gas for the winter in a big, potentially risky bet that the Iran war will be over soon and prices will drop.
The European Union’s gas storage facilities are only 65% full, their lowest level toward the end of summer in at least 15 years. Companies have been reluctant to buy gas for storage because they anticipated that Qatar, the world’s second-largest exporter of liquefied natural gas, would be able to resume normal shipments through the Strait of Hormuz this year once the conflict dies down.
Now, prospects for a clear end to the war before winter are fading, driving up LNG prices to a 3½-year high this week. European buyers are being forced to accept more expensive natural gas as the Continent’s winter heating season approaches, when gas demand peaks. They are bidding against each other and Asian buyers who are now aggressively locking up supplies.
“Europe is heading into winter with its gas tank at a record low, and the market is priced as if that’s fine,” said Simone Turri, head of the Western Europe gas desk at MET Group, an energy trading firm based in Switzerland. “Something has to give.”
The low storage levels reflect a sharp deviation from Europe’s energy security strategy, which was drafted four years ago when Russia’s invasion of Ukraine slashed Europe’s fuel supplies and sparked an energy crisis. The EU passed rules requiring countries to fill their storage facilities to at least 90% full by Nov. 1, protecting the Continent from attempts by the Kremlin or other adversaries to use gas as a weapon.
But this spring, the European Commission, the EU’s executive arm, said member states should aim to fill storage up to 80% rather than 90%, giving them the flexibility to put off some gas purchases with prices surging. At the time, officials were counting on the war to end soon, as President Trumprepeatedly said the two sides were close to a deal.
The conflict wore on, however, and navigating the Strait of Hormuz remains fraught. The U.S. and Iran fired on each other this week for the first time in more than a month, while tankers and other commercial vessels passing through the strait continue to be attacked.
Crude-oil shipments have been able to slip through, but only a handful of LNG tankers have exited the strait, according to ship-tracking service Kpler. The Qatari facilities that liquefy the fuel, located in the industrial city of Ras Laffan, are difficult to ramp up and down with every exchange of fire.
As prices have risen, energy companies have been reluctant to buy expensive gas to store it, preferring to wait for a resolution to the conflict in the Middle East and lower prices.
“I have been saying for six months that we need to be more careful about storage or we will have high prices going into winter,” said Anne-Sophie Corbeau, a gas expert at Columbia University’s Center on Global Energy Policy. “I would be very careful about not being too complacent because we have seen again and again that when problems arrive, they all come together,” she added.
Gas is a global commodity. If prices spike in Europe, that will inevitably blow back to America.
Henry Hub gas prices in the US show what happened when Russia’s invasion of Ukraine spiked gas in 2022.
