News
01/07/26
Storage deficit leaves Europe exposed to summer risks
London, 1 July (Argus) — Qatari terminal Ras Laffan's ramp-up, Norwegian
maintenance, Asian demand prospects and the reversal of inverted or narrow
seasonal spreads, as well as weather factors, will determine Europe's ability to
reach winter with healthy storage levels, market participants have told Argus .
As the summer injection season reaches its peak, participants are increasingly
concerned about European underground inventories, which were 207TWh below the
five-year average on 29 June. Most expect EU sites to be 70-80pc full at the
start of winter, while "70pc is the absolute minimum for navigating safely the
winter", a trader said. Whether inventories finish at the top or bottom of that
range will depend on several summer demand and supply risks. Ras Laffan's
restart and Asian demand The return of QatarEnergy's Ras Laffan remains the
single most important unknown, participants said. Hopes of a rapid resumption of
flows through the strait of Hormuz following a recent peace deal have dissipated
after successive breaches of the ceasefire. In this context, third-quarter Asian
LNG demand and its ability to pull supply away from Europe is another key
factor, particularly as northeast Asia reaches peak summer demand. Northeast
Asia's appetite for Atlantic basin spot cargoes will be particularly acute if
the Ras Laffan restart continues to be delayed and the El Nino weather
phenomenon significantly lifts the region's temperatures above normal. Long-term
forecasts on Tuesday predict above-average daily highs in Seoul, but normal
temperatures in Beijing and Tokyo in the coming weeks. Asian demand in the
coming months will also depend on China's balancing role in the global market,
and whether the country's authorities will be less strict in filling storage as
they were last year, a trader said. European LNG imports must increase to allow
sufficient spare supply for storage, market participants insisted. But any
reversal in global LNG flows seems unlikely in the short term. The inter-basin
arbitrage remains open for most firms until September-October, while prices at
some hubs, such as Peg and ZTP, are even higher than the delivered prices in
northwest Europe for July and August. This makes LNG deliveries unprofitable,
leaving empty slots at French and Belgian terminals for those months. Strong
Asian buying pressure and little competition from European firms pushed LNG
deliveries to Europe to a 20-month low last week. The Norwegian maintenance
wildcard Heavier works at Norwegian upstream assets than currently expected
could tilt the balance late in the injection season, market participants said.
Production capacity cuts were set at 71mn m³/d in September, as of Tuesday —
less than half the actual 187mn m³/d reduction last year, but much stronger than
the 42.3mn m³/d projected on 28 May. Norwegian offshore operator Gassco tends to
add more works closer to the time and unplanned outages often occur. Gassco
works are usually a key factor for Europe's end-of-summer outlook, and the
bloc's ability to rely on Norwegian flows for strong late injections could be
particularly crucial this year given the large storage deficit. Storage spreads
vs government intervention — who blinks first? Market participants are also
tracking potential signs of government intervention to secure storage filling as
inverted seasonal spreads persist. Near-term supply tightness has kept summer
prices above those for winter delivery, slowing injections to well below the
pace needed to reach next season with healthy inventories. EU injections for the
remainder of summer would have to average 3.79 TWh/d to reach an 80pc fill level
by 1 October. This would be far stronger than the five-year average injections
of 2.9 TWh/d during 30 June-30 September. But as summer progresses and
injections lag, a growing risk premium on the winter contract could tilt the
balance and normalise seasonal spreads. Security of supply concerns could also
prompt some governments to intervene, as the Dutch and Italian states have
already done. The key question is who will "blink first", a trader told Argus .
Last year, storage spreads moved to encourage filling stocks in the EU from
July, boosting demand for injections in the third quarter. Under German law,
market area manager THE is obliged to book capacity and inject gas if storage
operators fail to do so. But THE has repeatedly assured that it would not
intervene in the filling process. Weather risk to drive marginal injections A
recent episode of extreme heat in Europe showed the impact that strong
power-sector gas demand — caused by high electricity use, nuclear outages and
low wind — can have on marginal injections. Consumption across Europe's 14
largest gas consumers rose to 6.89 TWh/d on 17-26 June from 6.29 TWh/d earlier
in the month on stronger power-sector burn. This weighed on injections, which
fell to 3 TWh/d during the heatwave from 3.4 TWh/d earlier in the month. By
contrast, the El Nino weather phenomenon is linked to "a higher chance of
milder, wetter and windier weather during autumn and early winter" in northwest
Europe, according to the MetDesk weather service. Mild windy weather could keep
gas consumption weak in October-November, allowing for late injections or
delaying withdrawals. Several market participants also highlighted the
possibility that hurricanes in the Atlantic could disrupt US LNG loadings in
August-September, causing temporary price spikes. But the US National Oceanic
and Atmospheric Administration expects this year's hurricane season to be less
active than normal because of El Nino. By Isabel Valverde Send comments and
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