A senior executive at Norwegian energy giant Equinor warned that Europe could face a severe shortage of natural gas reserves if shipping disruptions in the Strait of Hormuz continue for another 1-3 months. Natural gas reserves were already severely depleted as Europe entered its current summer restocking season. After a long winter, natural gas inventories stood at only around 28%.



Currently, European inventory levels are between 35% and 37%, far below the seasonally normal level of 50%, increasing the risk that the usual 90% target will not be met by the start of the next winter heating season. The EU requires member states to maintain adequate inventory levels, typically setting a capacity target of 80%-90% before early winter.

Inventory Status: Northwest Europe's inventory is below 30%, with the Netherlands reaching a ten-year low.

A combination of factors has made filling major European gas storage facilities a daunting task in the second half of the year. Firstly, the peak winter heating season and a surge in industrial electricity demand have led to significant natural gas consumption, causing gas inventories in Northwest Europe to fall below 30%, roughly twice the EU's overall inventory deficit. Before spring arrived, gas inventories in the Netherlands, Germany, and France had already reached extremely low levels: Dutch inventories plummeted to just 5.8% by the end of winter, a ten-year low; German inventories fell to around 20%; and French inventories hovered around 27%.

Price distortions and tight LNG supply: Summer spot prices higher than winter contract prices

Secondly, distorted prices and inverted seasonal price curves exacerbated the European gas crisis. An unusual market structure—summer spot prices higher than winter contract prices—hindered necessary inventory replenishment. The Dutch TTF seasonal spread remained in negative territory, at approximately -€1.3/MWh, and this unusual forward discount disrupted the traditional dynamic of "low-price injection in summer and high-price extraction in winter."

Europe also faces tight LNG supplies, with intensified global energy competition and damage to major LNG facilities from Middle East conflicts making restocking costly. Delays and infrastructure damage at key facilities such as Qatar, coupled with the gradual withdrawal of Russian LNG, have exacerbated global competition for spot goods, particularly in the face of strong demand from Asia.

Responses from different countries: Italian financial compensation vs. German legal enforcement

EU member states have taken different approaches to the distorted pricing mechanism. In Italy, regulators and gas system operators introduced a financial compensation scheme, allowing traders to participate in auctions where market managers pay the difference between summer and winter gas prices to ensure storage targets are met. Germany's approach is different. Europe's largest economy has historically avoided mandatory injections through direct state subsidies, relying instead on legal authorization and market balancing tools. The German Federal Network Agency enforces strict statutory storage targets to ensure winter supply security. Shippers and network users are legally required to fulfill storage obligations, with compliance ensured through market regulation, capacity bidding, and strategic tools of the European Gas Trading Centre.

Despite differing domestic incentives, both countries are bound by EU regulations requiring them to reach historically low inventory levels of 80-90% before the winter heating season. Italy favors fiscal support, while Germany relies on regulatory mandates aimed at passing on storage obligations to active wholesale market participants.

Scenario Outlook: If the disruption lasts for 1-3 months, TTF prices may surge to €90/MWh.

Equinor warned that if the conflict is resolved quickly, Europe could reach a manageable inventory level of 75% by the end of the injection season; however, if the lockdown lasts for 1-3 months, the situation will become very serious, potentially pushing Dutch TTF prices up to €90/MWh. Rising gas prices are expected to drive a market correction, including an anticipated 10 billion cubic meter reduction in demand for power generation and increased industrial fuel conversion.

Historical comparison: The situation is far less severe than after the Russia-Ukraine conflict.

That said, Europe's current gas crisis is far less severe than the situation it faced a few years ago following the outbreak of the Russia-Ukraine conflict. In fact, Germany is moving forward with Uniper's privatization process after receiving billions of euros in bailouts during the 2022 energy crisis. Under EU state aid rules that approved Berlin's 2022 bailout, Germany is legally required to reduce its stake to a maximum of 25% plus one share by the end of 2028. Uniper's financial situation has improved significantly after Gazprom's supply disruptions resulted in a net loss of 40 billion euros in 2022. The utility won a major arbitration and has begun repaying government aid. This financial health makes it highly attractive to the private market.

European natural gas inventories are at dangerously low levels; any additional disruptions could trigger a price surge.

In summary, European natural gas inventories are currently at dangerously low levels, far below seasonal norms. Dutch TTF price inversions, tight LNG supplies, and intensified global competition make restocking exceptionally difficult and expensive. If the Strait of Hormuz disruption continues for another 1-3 months, Equinor warns that TTF prices could surge to €90/MWh, forcing demand disruptions and fuel transitions. While the current situation is less severe than during the 2022 energy crisis, Europe still faces a challenging summer restocking season, with inventory targets heavily dependent on geopolitical developments.