Disruptions in the Strait of Hormuz and outages at Qatar's LNG export facilities are tightening global gas markets, pushing the European Union to seek alternative supplies and greater flexibility ahead of winter.
EU gas storage facilities were about 69% full in mid-September, according to data from Gas Infrastructure Europe (GIE).
Storage levels have been weighed down by heavy withdrawals during the previous winter and low inventories at the start of the year.
Disruptions to LNG supplies through Hormuz and higher gas demand for power generation during heatwaves have also slowed injections.
Lower inventories leave Europe with a smaller buffer against a surge in demand during a cold winter or unexpected disruptions to LNG and pipeline supplies.
- Storage flexibility
The EU requires storage facilities to reach 90% by Nov. 1 under rules introduced after the energy crisis triggered by Russia's invasion of Ukraine.
Storage can cover around 25% to 30% of EU gas consumption during winter.
As the global LNG market tightens, Europe is considering higher LNG purchases, maintaining pipeline flows, greater flexibility on storage targets and measures to curb demand.
The European Commission supports greater flexibility for member states in meeting storage targets to ease pressure on gas prices.
In March, it urged countries to make use of an option to lower filling targets to 80% as early as possible. Rules revised last year also allow the target to be met between Oct. 1 and Dec. 1.
The Commission and member states consider 80% sufficient to maintain security of supply next winter, while existing rules allow further flexibility under certain conditions.
The approach could also reduce the risk of European buyers competing for LNG cargoes at the same time late in the summer, potentially pushing prices higher.
- Market incentives
Governments could also use financial incentives to encourage market participants to store more gas rather than relying on direct public purchases.
Germany plans to use market mechanisms to encourage gas traders to increase winter storage, according to international media reports.
Reducing gas demand is another option. The EU aims to limit gas-fired power generation by increasing the use of wind and solar, while energy efficiency and lower consumption by industry and households could also ease pressure on supplies.
The European Commission says lower gas demand than in previous years, rising LNG import capacity and more diversified supply sources are helping the bloc manage lower storage levels.
- US LNG as key alternative
If Qatari LNG production is disrupted between April and December, the EU's spot LNG requirement could rise to 56 billion cubic metres from 40 billion cubic metres, according to the EU Agency for the Cooperation of Energy Regulators (ACER).
That would leave Europe needing an additional 16 billion cubic metres from the global market, as Qatar is a major LNG supplier to Europe.
With limited scope to increase pipeline gas supplies in the short term, Europe would have to compete with Asian buyers for LNG cargoes.
Stronger Asian demand could also push prices higher for European buyers.
US LNG is a key alternative source. ACER estimates that US LNG accounts for about 30% of the EU's total gas imports and roughly two-thirds of its LNG imports.
- Qatar LNG capacity losses raise concerns over prolonged market tightness
Speaking to Anadolu, Anne-Sophie Corbeau, a global research scholar at Columbia University's Center on Global Energy Policy, said a major concern is how long a large share of Qatar's export capacity would remain offline because of the disruption in Hormuz.
Qatar can currently export LNG only to Gulf countries, mainly Kuwait, Corbeau said, adding that the two damaged trains could remain offline for another two to three years.
Additional US LNG capacity would not be able to fully replace Qatar's lost capacity in the short term, she said.
"It would take a long time for the US additional capacity to replace what's offline, what's damaged and what's under construction (the North Field expansion)," Corbeau said.
Replacing 12.8 million tons of annual capacity would be manageable if Qatar returns and work resumes on the expansion, she said.
"It is the least of our concerns if most of the LNG capacity remains offline and the expansion does not happen. That means the market would remain tight for a couple more years," she noted.
By Ebru Sengul Cevrioglu
Anadolu Agency
energy@aa.com.tr
