Equinor: Europe's gas reserves could be critical if Hormuz is closed for 1-3 months

Equinor executives said that Europe could face a critical shortage of gas stocks if the disruption in shipping through 'the Strait of Hormuz' lasts for one to three more months. Low inventories and distorted pricing slow down stockpiling.

Gas caverns, tanks and cylinders are only 35% or more full in Europe, which is below the seasonal norm of 50%, according to data from Gas Infrastructure Europe.

To meet the EU's 90% storage goal between October and December, member states must build a buffer during the summer in the northern hemisphere.

Helle Ostergaard-Kristiansen, Equinor's Senior Vice President of Gas & Power Trading, said that if the war ended tomorrow and the Strait was reopened quickly, the storage level could be reduced to 75%. However, if it continues to close for more than three months, the situation could get critical. The problem of filling the gas storage tanks for winter next year was already apparent at the start of March. Since then, little progress has been achieved due to the current price structure. Contracts for winter gas deliveries are cheaper than those for summer.

A RISKIER PRICE CAN CURB GAS CONSUMPTION

Analysts say that governments could intervene on the market by introducing incentives and rules, or they can change the structure of the prices with an increase in winter contracts compared to summer deliveries. The governments were very expensive in 2022 when they imposed regulations on storage filling. Peder Bjorland said that the market can likely balance the situation through price signals. He was speaking at the Flame energy conference in Amsterdam.

He said that high prices could reduce gas consumption by a significant amount - through switching fuel to coal, increased use of renewable energies?and a decrease in fuel demand from the industry. This would help a rebalance. Bjorland stated that if prices were similar to those seen at the start of the Iran War, around 60-70 euro per megawatt hour then the industry could reduce its fuel demand by around 10 billion cubic meters.

The Dutch TTF gas hub's European gas prices hovered around 50 euros/MWh Thursday. They had risen to 74 euro/MWh in March, which was their highest level since Jan 2023. (Reporting and editing by Emelia Sithole Matarise; Francesca Landini)

(source: Reuters)