Energy Aspects warns of historic European gas storage lows in 2027

European natural gas storage levels could plummet to as low as 15 per cent during the first quarter of 2027, according to a warning issued by Erisa Pasko, the lead European gas analyst at Energy Aspects. This projection represents a historic low for the region. Pasko noted that current storage levels stand at 67 per cent, with a potential peak of 70 per cent if weather conditions remain extremely mild. However, she cautioned that significant difficulties are expected to emerge early next year as reserves deplete.

When storage levels decline to such critical thresholds, deliverability issues become increasingly likely. Pasko explained that withdrawal capacity tends to decline sharply under these conditions, creating operational challenges for suppliers. In response, European states are anticipated to tap into emergency reserves. As these gas levels fall, the process of producing and accessing these reserves will become progressively more difficult. The UK possesses several sources of potential supply, including liquefied natural gas import capacity. While the country will secure LNG, Pasko indicated that it will have to compete with other offtakers for these resources.

The primary concern is not the absolute availability of gas, but rather the intense competition within Northwest European hubs. Pasko highlighted that this rivalry will be particularly pronounced between Germany, the UK and France. In the United Kingdom, the price cap had been forecast to rise by nine per cent in January. However, a recent study by Bloomberg Economics suggests that household bills could increase by as much as 25 per cent. Germany has installed floating storage and regasification units to enhance its import capacity following the Russia-Ukraine war. The German regulator has argued that this increased LNG import capability reduces the necessity for maintaining high levels of gas storage.

Pasko questioned the economic viability of this strategy, noting that German terminals are less competitive than other northern European hubs. She warned that even extremely mild weather would have limited impact on the market as long as no LNG is transiting the Strait of Hormuz. The timeline for the reopening of this critical route remains uncertain, despite recent diplomatic efforts. Pasko stated that it is not impossible for the disruption to extend into the summer of 2027. She observed that the longer the situation persists, the higher prices will rise, and the storage situation cannot deteriorate significantly further from its current trajectory.

Market participants have already priced in the risk of the Hormuz closure continuing during the fourth quarter. However, Pasko warned that moving into December and the first quarter, prices could increase substantially. She noted that there is significantly less price elasticity at these elevated levels. Consequently, the only remaining anchor for the market is demand destruction across various industries.