European Union gas storage was at 63% on Aug. 25, 17% below the average of the last five years. This has boosted short-term European gas and power prices.
Why it matters: With Qatar LNG exports severely constrained and Europe facing fierce competition from Asian buyers for US LNG, we forecast EU gas storage at an all-time low of 69% by Nov. 1, equating to 37% of the gas consumption of a normal winter, the lowest level since the 2021-22 energy crisis.
European Gas Storage Levels as of Nov. 1 Each Year
- To finish the coming winter with a reasonable minimum storage buffer, European TTF gas prices will need to remain around €60-€70/MWh to attract substantially more US LNG than last year under normal weather. A cold winter would likely push TTF to €90-€120/MWh.
- While we expect the global LNG supply/demand balance to ease in 2027, Europe’s gas balance should remain tight, supporting gas and German power prices near current 2027 forward levels of €49/MWh and €110/MWh, respectively.
The bottom line: Persistently high energy prices are accelerating deindustrialization and demand destruction. European utilities benefit from these energy price spikes and can reinvest windfall profits in high-quality assets like the electricity grid or in the US renewables.
European Utility Stocks: 5-Year Annualized Total Return
- Interest rates will likely need to stabilize for the sector to outperform. No-moat Engie, RWE, and Naturgy are best positioned to benefit from higher energy prices. With windfall profits boosting cash generation, capital allocation becomes paramount.
- Engie and RWE have strong track records in this regard. Engie is undervalued because of the French political risk and RWE because the market overlooks the group’s favorable positioning against high power demand growth in the US.
Big picture: This second European gas crisis in four years highlights the EU’s vulnerability to external shocks. Decarbonization goals and uncertainty over long-term gas demand limit long-term LNG contracting, exposing Europe to cargo diversion when Asian JKM prices outbid TTF.
