Europe’s Gas Stocks at Risk If Hormuz Closed for Up to Three Months, Says Equinor
Potential Impact of Strait of Hormuz Disruption on European Gas Supplies
By Francesca Landini
AMSTERDAM, May 21 (Reuters) - Europe could face a critical shortfall in gas stocks if disruption to shipping through the Strait of Hormuz lasts one to three months from now, as low inventories and distorted prices slow stockpiling, senior executives at Equinor said.
Current Gas Storage Levels and Seasonal Targets
Gas caverns and tanks across Europe are currently just above 35% full, below a seasonal norm of around 50%, Gas Infrastructure Europe data showed.
Member states need to build a gas buffer during the northern hemisphere summer to reach an EU-imposed 90% storage target between October and the beginning of December.
Equinor’s Outlook on Storage Scenarios
"If the war stopped tomorrow, with free flow to the Strait happening quickly, we could come to an acceptable, but tight storage level of 75%, but if the closure continues for one to three months, it could become critical," Equinor Senior Vice President for Gas & Power Trading Helle Ostergaard Kristiansen told Reuters.
Refilling gas storage for next winter already looked problematic at the beginning of March and little progress has been made since then due to current prices, with contracts for gas delivery in winter cheaper than summer.
Market Responses and Price Dynamics
Government Intervention and Market Mechanisms
HIGHER PRICES COULD CURB GAS CONSUMPTION
Governments could intervene in the market with incentives and rules or the structure of prices must change with a rise in contracts for gas delivery in the winter compared with summer deliveries, analysts say.
"We saw that in 2022, when the governments imposed regulation on storage filling... it was very costly for them. So the market itself can probably balance the situation through price signals," Peder Bjorland, Equinor's vice president for gas trading, said on the sidelines of the Flame energy conference in Amsterdam.
Potential for Reduced Gas Demand
He added that elevated prices could curb gas consumption significantly - through fuel switching to coal, an increased use of renewable energy and a fall in fuel demand by the industry - helping a rebalance.
"If we have prices up to what we saw in the beginning (of the Iran war), around 60-70 euros per megawatt hour, then we have estimated that gas to power alone could actually result in a reduced demand of around 10 billion cubic metres," Bjorland said.
Recent Gas Price Trends
European gas prices at the Dutch TTF gas hub were hovering around 50 euros/MWh on Thursday, having risen in March to 74 euros/MWh, their highest level since January 2023.
(Reporting by Francesca Landini; Editing by Emelia Sithole-Matarise)
