Since the Russia-Ukraine conflict caused a significant decrease in Russia's supply of Henry Hub Natural Gas to Europe, the gas inventory in Europe has been a focus of attention as an Indicator.

The network of natural gas storage facilities across the EU is the second largest in the world, trailing only behind the USA, and has become an important buffer to mitigate supply shocks and price surges.

As the flow of natural gas from Russia declined, the EU successfully avoided winter supply tightening by reducing overall natural gas demand and increasing imports of liquefied natural gas from the USA, Qatar, and even Russia.

Zhito Finance APP notes that the pressure on natural gas storage in the EU may increase by 2025. Adverse weather conditions are causing Europe to deplete its natural gas reserves faster in winter, and the seasonal price difference has also reversed, making it uneconomical to replenish inventories in summer.

If Russia and Ukraine reach a peace agreement, the delivery of natural gas to Europe via this route will resume to normal. Whether the EU will re-import Russian pipeline natural gas remains to be seen. The EU is unlikely to be willing to hand back control of its energy security to Russia.

Germany has the largest natural gas storage capacity in the EU.

How high is Europe's dependence on Henry Hub Natural Gas storage?

Europe relies on gas storage during the winter, with average consumption doubling as heating increases. Although gas suppliers on the continent (from Norway and Algeria to Qatar and the USA) generally ramp up production to maximum levels, it is not enough to meet the growing demand.

As a result, stored gas can meet about 30% of the daily demand for the EU in winter. On the coldest days, this proportion can exceed 50%, especially when wind speeds are low and Wind Power generation decreases. During severe supply disruptions, this proportion can be even higher, such as during the gas disputes between Russia and Ukraine in the bitterly cold weather of 2006 and 2009.

How has the energy crisis changed the way Europe stores gas?

The energy crisis triggered by Russia's invasion of Ukraine has prompted the EU to set legally binding targets for gas storage across the union since 2022. This move aims to ensure supply security.

By November 1, the storage must be at least 90%, in addition to interim targets in February, May, July, and September that need to be achieved. The interim targets vary by member state, depending on their tank sizes and consumption levels.

As of February 2025, some countries have yet to meet their targets. The EU has not penalized member states that fail to achieve these targets, but EU regulations state that "significant and persistent deviations" may lead the European Commission to take action to ensure gas supply security is not compromised.

Why is the market concerned about Europe's gas storage levels in 2025?

In the winter heating season of 2024-25, the natural gas reserves in the EU were quickly depleted. The weather is colder than a year ago, and there have been more calm days, which has increased the demand for natural gas, forcing countries to tap into their reserves. Coupled with the loss of pipeline gas from Russia through Ukraine, as of early February, the EU's gas storage was only about 50% full, far below nearly 70% a year ago, and it is the lowest level at this time of year since the energy crisis in 2022.

The consumption rate of natural gas inventory in Europe for the winter of 2024/25 is accelerating.

Currently, there is no threat of natural gas depletion in Europe, but there are concerns about the speed at which stock replenishment needs to be done in preparation for next winter. EU officials have been working hard to achieve inventory goals. Italy has pushed to start reserves early, while Germany has discussed subsidies for inventory replenishment.

Concerns about how Europe will replenish natural gas stocks have led to a surge in summer natural gas contract prices, pushing short-term prices to their highest level in two years on February 10. As a result, energy costs remain high, prolonging the pain for European households and businesses, while the risk of economic recession in countries like Germany and the United Kingdom has once again become a focus of concern.

In the short term, there is unlikely to be relief on the supply side, and it is expected that by 2025, supplies will remain tight due to delays in many new production projects. The level of competition that Europe faces for liquefied natural gas shipments will depend on China's economy, the restart of Japan's nuclear reactors, and the weather conditions in Northeast Asia affecting heating and cooling demand.

How do natural gas prices affect the rate of storage replenishment?

The price differential between summer and winter natural gas contracts is key to determining whether there is an economic incentive to store gas for next winter. Buyers typically hope to take advantage of lower summer prices to store natural gas and then use or sell it in winter to make a profit.

However, the price for purchasing Henry Hub Natural Gas for the summer of 2025 is already higher than the price for purchasing Henry Hub Natural Gas for the winter of next year. In January of this year, the price difference reached its highest level in three years. On February 10, the price was still as high as 5 euros per megawatt-hour (5.16 dollars per megawatt-hour).

According to Bloomberg Intelligence, this corresponds to a gap of about 3 billion euros between summer purchases and winter sales, while Europe may need to increase its natural gas storage to reach the 90% target. For energy companies, traders, and even some consumers hoarding natural gas, such as Vito Group, Shell, and Rhine Group, these are potential losses.