Tightening global supply of oil and gas is putting Europe on course for a difficult winter this year due to the continent’s significant dependence on energy imports, despite energy transition ambitions. Gas in storage is much lower than it should be, and a diesel crunch is threatening fuel oil supply security for the heating season. It could turn into a perfect storm.
The first warning signs emerged as early as March, as the U.S. and Israeli war against Iran crippled Qatar’s LNG export infrastructure, forcing the Gulf state to declare force majeure on exports. Europe, and more specifically the European Union, is heavily dependent on LNG imports since it ended Russian pipeline imports amid its Ukraine war-related sanction push. This dependence has caused its gas import bill to swell considerably—and Qatari LNG was the cheaper option.
With that out, the EU, which sources about 21% of its energy from natural gas, per official figures from Eurostat, would need to lean more heavily into U.S. liquefied gas, and that is quite expensive. The benchmark gas price in the EU has gone up by 50% since mid-June, Wood Mackenzie reported recently, noting that “gas storage is only just above 50% full, an historically low level at this time of the year, raising concerns over how much gas Europe will be able to secure ahead of the 2026/27 winter heating demand season.”
Wood Mackenzie, meanwhile, warned that if imports of LNG continued at the current subdued pace, the EU would have its gas storage only 75% by November when the heating season officially starts. This is considerably lower than the target of 90% that Brussels set for its member states back in 2022. Recently, the EU’s leadership indicated it would lower November targets for gas storage in response to the supply challenges, but lowering the target does not improve the supply security situation.
Analysts like to remind audiences that even with the latest war-related spike in benchmarks, gas prices in the EU are much lower than they were in 2022, but that does not mean they are normal. Indeed, European industries and households have been struggling with energy costs for four years now despite the fact that prices are off their 2022 peaks.
Gas prices could—and probably will—rise further because securing supply for the winter is not a matter of preference. It is a matter of necessity. For all the effort put into building wind and solar as an alternative to baseload electricity generation, EU industries still get a solid portion of their electricity from gas, and gas supplies 30% of household heating needs, as well.
At the same time, supply is tightening in fuels as well, notably in diesel. “We have been warning for some time: Product [ie diesel and others] markets are far tighter than crude markets,” Amrita Sen from Energy Aspects said earlier this month, as quoted by the Financial Times. [Products] are what you and I pay for; we don’t pay for crude.”
Energy Aspects is not the only analytical firm issuing these warnings. While most observers focus on crude oil flows out of the Persian Gulf, some have noted that the region also exported quite a lot of refined fuels. These are now gone, too, and the rest of the world has limited refinery capacity—and, of course, a tighter crude oil supply. On top of this, Ukrainian drone attacks on Russian refineries prompted a ban on diesel exports—and Russia is one of the biggest diesel exporters at around 700,000 to 800,000 barrels daily, according to data cited by the FT in the above report.
“The volume is significant from a global balance perspective, as the current destination countries will now also be competing for the volume that Europe is pulling,” Rystad Energy analyst Janiv Shah told the FT, highlighting what is basically a repeat of the LNG situation for the EU but in diesel—which is an essential fuel for any economy, even those determined to electrify.
Diesel inventories in Europe are even lower than gas inventories, according to Reuters. In fact, diesel in storage is at the lowest since 2022, the publication reported this week, noting that meanwhile diesel inventories in the U.S. are also down considerably, so the world’s biggest diesel exporter has limited space to boost these exports, even with refineries running at record rates.
In short, most of Europe is about to find out just how risky energy import dependence is and how important diversification is. In fairness, this is something European politicians have been saying for years now. Yet they have decided to bet on alternatives that have their own flaws, namely, weather dependence. And there aren’t enough batteries to compensate for that. Europe should hope for another mild winter.
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