COMMODITIES 2025: EU gas storage evolution key to 2025 price development

With Europe having seen strong gas storage withdrawals in the final weeks of 2024, the market is now focused on the level of stocks for the remainder of the winter and the subsequent need to refill again next summer.

There is growing unease about the expected rate of filling in summer 2025 given forecasts of comparatively low stocks by the end of winter and the current inversion of the summer 2025-winter 2025 spread.

Further, the expected new wave of LNG supply growth is now seen as slowing while Europe is also likely to again face strong competition from Asia for LNG next summer.

The Summer 25 TTF price remains at a premium to the Winter 25 equivalent, affecting traditional storage economics.

Platts, part of S&P Global Commodity Insights, assessed the Summer 25 TTF contract at Eur41.29/MWh on Dec. 17 compared with a Winter 25 TTF price of Eur39.26/MWh.

However, EU member states will still be obliged to meet storage filling targets through 2025, with the EU regulation requiring sites to be filled to 90% of capacity by Nov. 1 remaining in place until the end of 2025.

The European Commission -- wary of stocks being drawn down too quickly in the first months of the current winter -- has also raised the Feb. 1, 2025, target for EU-level storage fullness from 45% to 50%.

Stock draw

Commodity Insights expects European storage sites to be 48.5% full by the end of March 2025 -- some eight percentage points lower than the average for the past two winters.

A France-based trader said the lower storage levels expected by the end of the winter seemed realistic taking into account quicker withdrawals at the start of the season.

"There are also uncertainties on the supply side and with the different supply-demand balance the expected storage level would be lower," the trader said.

"People are more concerned about the next injection cycle. [Market] participants may prefer to pay any penalties for not filling up to storage obligations rather than suffering with known losses due to the spread."

Analysts also see the 2025 summer-winter spread and its impact on filling as problematic.

"Negative front seasonal spreads could reduce the economic incentive for storage filling through summer 2025," Gergely Molnar, gas analyst at the International Energy Agency, told Commodity Insights.

"Observing the EU and national storage fill obligations will be even more important to ensure supply security," Molnar said.

Parts of Europe may also be forced to draw down their storage stocks more heavily than usual through in January if -- as expected -- Russian gas flows via Ukraine end on Jan. 1 due to the expiry of the countries' transit deal.

"Storages will be critical as we won't get as much through pipeline routes," a Netherlands-based trader said, adding that the market was pricing in a suspension in Russian flows via Ukraine.

"Storages will be the only buffer that we have -- they were already important and will become instrumental going forward in case LNG is difficult [to attract]," the trader said.

The IEA's Molnar said the lower gas stocks compared with last year's levels -- together with the potential halt of Russian piped transit via Ukraine and limited LNG supply growth -- could tighten the summer market.

'Dunkelflaute' impact

The strong withdrawals in November and December were in part due to higher demand for gas in the power sector due to low wind and solar generation -- the so-called "Dunkelflaute" phenomenon.

"Gas generation filled the void, rising by 22 GW month on month in November, leading to the fastest storage drawdown since 2016," analysts at Bank of America said in a recent note.

"European storage has already drawn quickly due to weather and low LNG send-out. Now, the market faces multiple uncertainties as the region enters the coldest winter months," they said.

And with the summer-winter spread having inverted for 2025, "this economic carrot" is gone.

"The market is signaling insufficient gas supply in 2025, and if Europe wants to hit storage requirements next fall, it will have to do so without compensation," BofA analysts said.

"This setup is similar to 2022, when price-insensitive buying broke traditional price/storage relationships, which suggests volatility ahead."

The EU began the 2022 filling season with stocks just 26.5% full -- mainly as a result of curtailed Russian gas exports and Moscow keeping its storage sites in Europe empty.

It led to the introduction of EU storage targets and a rush to fill sites at any cost.

BofA said that without any further encouragement, EU countries would likely stop at 90% fullness next year.

This, it said, would put the region in a "worse position" year over year to weather next winter, creating additional upside price risk.