Europe braces for winter chills amid gas squeeze

With gas reserves unusually thin for this point in the year, Europe heads into winter bracing for higher energy bills, analysts have said. Benchmark European gas prices pushed toward a four-year high of 75 euros ($87) per megawatt hour last week and hovered around 73 euros on Monday.

The continent's storage was 66.6 percent full on Monday, well below the 80 percent average for this time of year, as seasonally low inventories and a squeeze on shipments through the Strait of Hormuz tighten supply.

Analysts at British consultancy Wood Mackenzie said disruptions to global fuel supplies, combined with thin gas inventories, exposed the market to greater volatility if fresh crises hit, reported The Daily Telegraph newspaper.

David Lewis, a senior research analyst at Wood Mackenzie, said, "The combination of Hormuz supply disruptions and below-average storage leaves Europe with very little room for error this winter.

"Storage normally acts as the market's shock absorber, but with inventories at their lowest for this time of year since 2009 and balances unlikely to normalize before 2028, the cost of a cold winter or a supply shock will be felt directly in prices."

According to industry estimates, around one-fifth of global LNG has been effectively cut off since late February, pitting Europe and Asia against each other for fewer cargoes.

It means Europe is entering the winter heating season with limited protection against supply disruptions, infrastructure outages, and weather-driven demand swings.

Wood Mackenzie said: "Only a mild winter would ease balances. Most other scenarios point to continued tightness, elevated volatility, and higher prices directly impacting retail and industrial customers across Europe."

Adding to Europe's supply anxiety and price pressure, Germany's gas storage operators have warned that inventories will be below sufficient levels heading into peak winter demand, Reuters reported.

Germany's storage was 53 percent full on Sept 1 — the weakest early September level in 15 years — after a summer with little economic incentive to build supply, the industry group INES said.

Although capacity bookings are high, slow filling means stocks are unlikely to exceed about 77 percent by Nov 1, which is short of a comfortable cushion, INES Managing Director Sebastian Heinermann said.

INES said that would cover a typical winter but leave the system exposed if deep cold hits, with the risk of notable shortfalls on the harshest days.

jonathan@mail.chinadailyuk.com