The European gas market has come under significant pressure this year as supply concerns ease. And while we continue to hold a bearish view on the European market in the medium to long term, we believe there’s room for some upside in the short term, particularly if the 2025/26 winter turns out to be colder than usual.
The EU entered the 2025/26 heating season failing to hit the Commission’s storage target of 90% full by 1 November. This was due to the Commission relaxing storage rules earlier in the year, which effectively allowed the target to be met at any time between 1 October and 1 December. It means that if market conditions were unfavourable, the target could be lowered to 80%; if conditions were very unfavourable, this could be reduced even further to 75%.
The relaxation of storage targets eases upward pressure considerably, reducing the need for the region to buy gas at any cost to meet storage targets. The action allowed the Title Transfer Facility (TTF) forward curve to return to a more normal shape. Previously, storage targets were distorting the curve. The move by the Commission saw gas storage peaking at 83% full in mid-October. At the start of December, storage had fallen to 75% full, below both the 5-year average and last year’s level of 85% for this stage of the year. Lower storage leaves Europe relatively more vulnerable going through the 25/26 winter, though.
For now, our balance sheet shows that the EU will exit the 25/26 winter with storage at around 25% full. This assumes we see record monthly imports of LNG in the winter. Obviously, plenty can, and likely will, change between now and the end of March 2026.
The longer-term outlook remains bearish for the global LNG market and European gas. The scale of LNG export capacity set to start will push the market into a large surplus. During the peak of the surplus, likely in 2027 and 2028, we might need to see prices trading down to levels where LNG plants reduce operating rates.
Basically, we would need to see the market trade down to the short-run marginal cost (SRMC) for US LNG producers. This is a moving level, depending largely on where Henry Hub is trading. Assuming a Henry Hub price of $4.50/MMBtu, it would work out to an SRMC of a little more than $6/MMBtu (EUR18/MWh).