Europe gas extends gains as EU storage at historical August lows

European natural gas prices surged on Wednesday, extending gains that pushed them to multi-week highs in the previous session. Concerns about supply security ahead of the winter heating season were fueled by historically depleted storage levels and ongoing shipping disruptions in the Persian Gulf. Dutch front-month futures rose 3.3% to trade at 60 euros per megawatt-hour, nearing the highest level since July 24. British wholesale contracts followed suit, increasing by 1% to around 149.24 pence per therm.

The market's upward momentum was driven by official industry data revealing a worsening inventory deficit across Europe. As of Gas Infrastructure Europe's latest figures, EU gas storage facilities were filled to a mere 59.12% of capacity, marking a historic low for this time of year. This situation raises concerns about the bloc's ability to meet its targets as winter demand approaches. The slow pace of summer refilling is attributed to a combination of geopolitical bottlenecks and adverse weather conditions.

Geopolitical tensions, particularly the military conflict involving Iran, the U.S., and regional proxy forces, have severely restricted commercial maritime traffic through the Strait of Hormuz. This chokepoint has delayed liquefied natural gas (LNG) shipments from Qatar to European import terminals. Simultaneously, intense summer heatwaves in Southern and Central Europe have necessitated power utilities to burn more natural gas for air-conditioning cooling, further diverting supply away from underground storage.

As a result, the market has shifted into backwardation, where near-term prices exceed those for future delivery, removing the financial incentive for utilities to purchase expensive spot gas for storage.