Abstract
The pace of natural gas inventory replenishment in Europe is slower than in previous years, with the stock level expected to reach only 69% to 84% by early November. Asian buyers are offering higher prices, causing U.S. LNG shipments to divert. If Europe wants to build a sufficient safety cushion before winter, it can only compete for the limited supply by raising its bids.
Mid-August has passed, yet the European natural gas market is still worrying about winter stocks. Citing calculations by energy market intelligence firm Montel, Euronews reported that by November 1, Europe's natural gas inventory level might only be between 69% and 84%, essentially making the EU's original 90% target unattainable. Even when measured against the already relaxed requirements, the current refill rate seems inadequate.
This is not just a problem confined to inventory tables. Lower inventories mean a thinner buffer available during cold snaps or supply disruptions, and traders will also start bidding up winter supply prices earlier. The upward pressure on European natural gas prices recently largely stems from this situation: time is running out, while available supply options are not increasing correspondingly.
Three Months to Close a Gap of 72 Shipments
Montel's statistics show that from April to July this year, Europe's net natural gas injections were 11% lower than the five-year average and 18% lower than the same period last year. Germany's situation is particularly tight, with a storage level of only 46% at the end of July.
From May to July, Europe received an average of about 105 LNG cargoes per month. To push inventories close to 80% by early November, it would normally need about 130 cargoes per month. However, due to an accumulated shortfall of approximately 72 cargoes, it would need to attract an average of over 140 LNG carrier shipments per month in August, September, and October. This number is difficult to achieve unless European prices rise significantly or LNG shipments resume through the Strait of Hormuz.
The most direct price logic here is simple: for Europe to pull cargoes back from other markets, it needs to offer higher prices. The closer the refill deadline gets, the less room buyers have to wait for lower prices, and the harder it becomes for supply premiums in winter contracts to fade.
U.S. LNG is Diverting to Asia
Another trouble Europe faces is that Asian buyers are currently willing to pay higher prices. From March to July, U.S. LNG shipments to China, Japan, South Korea, Taiwan (China), and India tripled, setting a record. In July alone, these five markets received more U.S. LNG than Europe for the first time.
For sellers, cargoes flow to destinations with higher returns. Since April, for much of the time, the profits from shipping U.S. LNG to Northeast Asia have been higher than shipping it to Northwest Europe, leaving Europe, which originally relied on incremental U.S. supply, in a more passive position. If Europe raises its bids, the costs of natural gas and electricity will rise; if it doesn't raise prices, inventories may remain at low levels before winter arrives.
This is also why this news supports natural gas prices. Europe and Asia are competing for the same batch of flexible LNG, which will drive up the price of global marginal cargoes. Demand at U.S. export terminals will also remain strong as a result, indirectly supporting trading benchmarks based on U.S. natural gas. Of course, short-term fluctuations in NATGASUSDT will still be influenced by weather, U.S. inventories, and production, but Europe's current refill gap removes a layer of buffer from the global natural gas supply chain.
Before November, what the market really needs to digest is not whether the 90% target can be adjusted on paper, but whether Europe can increase its monthly arrivals from around 105 cargoes to over 140 cargoes for three consecutive months. As long as this gap persists, it will be difficult for natural gas prices to completely remove the risk of winter supply shortages.
