Heat, drought, and war push Europe toward the worst gas crisis in 15 years

European energy markets are under increasing pressure, and the combination of several crises threatens to leave the continent with a dangerous shortage of energy resources before winter. Europe has been hit by a fourth heatwave since May, a prolonged drought has pushed the Rhine to record low levels, and the ongoing conflict surrounding Iran continues to disrupt global liquefied natural gas supplies. All of this creates the risk of the most serious winter energy deficit in more than a decade.

Gas storage levels lagging

According to Gas Infrastructure Europe, as of the end of July, gas storage facilities in the EU were filled to about 54% of their capacity, or approximately 12 percentage points below the seasonal average for the last five years. The analytical company Energy Aspects warned that reserves are 15 billion cubic meters below the five-year average and that to stimulate injection, TTF prices must remain high throughout the summer.

At the end of June, the "Financial Times" reported that Europe risks entering the heating season with the lowest gas reserves in at least 15 years. This assessment was also shared by the World Economic Forum.

The head of British Gas warned last week that the UK could also face energy shortages this winter after wholesale gas prices reached an annual peak. In July, TTF natural gas futures at the Dutch hub again rose above 60 euros per megawatt-hour amid growing concerns about supply disruptions, and data from Trading Economics showed a price increase of almost 37% over the last month.

Heat and drought shrink supply

According to analysts who track extreme weather events, the historically unprecedented fourth heatwave is expected to push temperatures above 40°C across the Mediterranean region. The intense heat is reducing output at French nuclear power plants, as warmer river water impairs cooling efficiency, and it is also limiting wind power generation under "heat dome" conditions.

On July 27, Reuters reported that the level of the Rhine at the chokepoint of Kaub could fall to about 20 centimeters by the end of the week, which will force cargo ships to be loaded to only 15-20% of their maximum capacity. According to estimates by the Kiel Institute, cited by Deutsche Welle, the low water level could reduce Germany's GDP by 0.1-0.2% in the third quarter.

The Iranian conflict and the fight for LNG

Supply disruptions began in late February when US and Israeli military strikes on Iran forced Tehran to close the Strait of Hormuz, blocking about 20% of the global LNG supply. In March, an Iranian strike on the Qatari terminal "Ras Laffan" followed: two of the 14 gas liquefaction trains were damaged, which further exacerbated the market situation.

According to S&P Global, the projected growth of global LNG supply in 2026 has fallen from 11% to just 1%.

Additional pressure comes from Goldman Sachs, which pointed out that the reduction in natural gas inventories in China indicates increased LNG imports ahead of winter. This increases the risk of further gas price hikes in Europe, especially if disruptions in the Strait of Hormuz persist.

As the peak of the heating season approaches, competition for available quantities between Asian and European buyers could intensify further, leaving European gas storage reserves at a dangerously low level.