Europe Enters Winter With Its Lowest Gas Inventory of the 2020s
Asian spot LNG is trading above $30 per million British thermal units and Europe is entering winter with its lowest gas inventory of the 2020s, yet Rystad Energy stops short of predicting a further rally. In its winter LNG outlook, published this week, the consultancy lays out as many ways for prices to fall as to rise and tells buyers to plan for a wide range of outcomes instead of one base…
Europe is entering winter with its lowest gas inventory in a decade, despite Asian spot LNG prices trading above $30 per million British thermal units. Rystad Energy, a consultancy, does not predict further price increases and advises buyers to prepare for a wide range of outcomes. EU storage sites were only 71.6% full as of November 11, with Germany at 58%, significantly below the five-year average for the start of the heating season.
The International Energy Agency models a cold winter combined with disruptions in the Strait of Hormuz, suggesting EU storage could drop below 10% of working capacity by the end of March. A late cold snap would create challenges for empty storage sites, which struggle to respond as withdrawal rates slow. Europe may need to pay more to prevent US cargoes from being redirected toward Asia, where Middle Eastern supply loss has led to increased demand.
Asia's demand for LNG remains less enthusiastic due to the mild winter forecast in Northeast Asia, where LNG at $30 discourages gas usage and promotes coal consumption. Weather may not be the sole factor, as Bernstein's calculations indicate a super El Nio would reduce Japan's winter heating demand by 19% but only lower LNG consumption by 2%.
US domestic supply is also curbing Chinese spot buying, with the national average LNG price near $22, nearly $10 below the Japan-Korea marker. In the US, Henry Hub is expected to average $2.87 from November to March, 16% below last month's forecast. Rystad anticipates a winter peak around $4, and both experts describe a US market detached from the global rally.
October saw both the busiest month for LNG tankers leaving Hormuz since February and the worst month for attacks on shipping since the war began. S&P Global Energy tracking notes 31 laden LNG tankers exited the strait, up from 23 in September, while the Washington Institute for Near East Policy recorded 37 ships attacked in the same period.
Qatar's October exports exceeded 2.7 million tons, down from nearly 6.2 million in February due to Iranian attacks cutting 17% of its export capacity. Global LNG supply is projected to drop by 3% this year, the steepest decline on record. Transits steadied in October, potentially allowing a supply recovery by the second quarter of 2027; however, output risks another steep decline with another escalation.
Diplomatic efforts appear limited, as Iran's top security official denies talks with Washington and refuses to allow enriched nuclear material to leave the country, while Washington insists on nuclear concessions in any deal. European gas prices have risen consecutively, with the front-month TTF increasing 2% to 88.42 per megawatt-hour.
Rystad highlights a potential cold snap in under-stocked Europe and an El Nio drought that could boost gas demand in Colombia and Brazil, but US weather could temper these effects. Conversely, a Gulf recovery by spring could alleviate some of the current winter's challenges. The IEA warns of 150 billion cubic meters of cumulative LNG supply losses from 2026 to 2030, equivalent to 15% of the new global supply expected during that period, and sees no significant relief before the end of the decade.
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