Europe's gas reserves could become critical if the Hormuz Strait is closed for 1 to 3 months.

Europe may experience a significant gas shortage if shipping disruptions in the Strait of Hormuz persist for one to three months, as low stock levels and skewed prices hinder the accumulation of gas supplies, according to Equinor's senior executives. Current data from Gas Infrastructure Europe indicates that gas storage facilities throughout Europe are just over 35% full, which is below the typical seasonal level of approximately 50%.

Member states are required to establish a gas reserve during the summer months in the northern hemisphere to achieve a mandated EU storage target of 90% by late October to early December. "If the war ended tomorrow and shipping through the Strait was restored quickly, we could reach a manageable, albeit tight, storage level of 75%. However, if the disruption lasts for one to three months, the situation could become critical," said Helle Ostergaard Kristiansen, Equinor's Senior Vice President for Gas & Power Trading.

Refilling gas reserves for the following winter appeared challenging as early as March, and little advancement has been made since then due to current pricing, with winter gas contracts being cheaper than those for summer delivery.

Governments might need to step in with incentives and regulations, or the pricing structure must adjust, with higher winter delivery contracts compared to summer prices, analysts suggest. "In 2022, we saw governments impose regulations on storage filling, which proved costly for them. The market can likely self-correct through price signals," noted Peder Bjorland, Equinor's vice president for gas trading, at the Flame energy conference in Amsterdam. He also mentioned that high prices could significantly reduce gas consumption—through coal switching, increased renewable energy use, and decreased industrial demand—facilitating a balance in the market.

"If prices rise to levels we witnessed at the onset of the Iran war, around 60-70 euros per megawatt hour, we estimate that gas for power could lead to a demand reduction of about 10 billion cubic meters," Bjorland stated. As of Thursday, European gas prices at the Dutch TTF gas hub were around 50 euros/MWh, having peaked in March at 74 euros/MWh, the highest since January 2023.