European gas pauses 4-day surge; Depleted storage leaves floor under curves

European wholesale natural gas prices fell on Tuesday, reversing a surge to fresh 2022 highs the day before as market participants paused to assess supply disruptions from Norway. The benchmark front-month contract retreated from a four-year peak of 97.19 euros per megawatt-hour (MWh) to 96.29 euros per MWh after closing at that level on Monday. In the North Sea, the British equivalent also softened to 238.00 pence per therm from 239.33 pence, easing after a brief uptick.

The retreat follows a short-lived rally on Monday spurred by unexpected supply curtailments at Norway's primary pipeline supplier, Gassco. The offshore Oseberg field experienced an unplanned disruption, increasing daily output loss from 7.7 million cubic meters to 12.7 million cubic meters. This setback caught continental traders off guard, halting pipeline imports just as utilities sought to secure physical volumes ahead of winter heating demand.

European gas storage levels are critically low, with Gas Infrastructure Europe (GIE) data showing facilities holding just 74.6% of capacity. This is the lowest inventory level recorded for late October since 2009, falling well short of the 86% historical average for this time of year and last year's 95% fill rates. The shortfall has been further aggravated by disruptions to global maritime flows, particularly the ongoing military escalation between Iran and Yemen's Houthis.

This has disrupted Liquefied Natural Gas (LNG) shipments through the Strait of Hormuz, reducing Middle Eastern seaborne deliveries to Europe by nearly 80% year-on-year.

Analysts at Goldman Sachs noted that rising TTF risk premiums reflect heightened concerns over the uncertainty in Mideast energy supply. With cold weather forecasts emerging across Northern Europe in early November, utilities face the challenge of drawing down unexpectedly thin reserves sooner than usual. This could lead to fierce bidding wars with Asian importers for Atlantic basin cargoes.