Every summer, EU member states initiate processes to replenish their natural gas reserves in order to meet the EU's target of natural gas storage levels. However, due to the tensions in the Middle East, the EU's natural gas reserves this year have fallen below the five-year average level. As a result, European countries have been forced to seek more natural gas imports, which has intensified the competition for natural gas supply between European and Asian economies.
According to a report by the European version of 'Politico News Network' on June 21, European analysts and officials are concerned that since the EU has little control over European energy importers, the interests of these importers vary greatly. As a loose collective, the EU is unable to compete with Asian economies for natural gas supplies. This means that the EU may not be able to achieve its gas storage targets, and will have to delay this issue until winter.
According to EU regulations, EU member states must increase natural gas reserves to 80% of total capacity by December. Typically, this process occurs during the summer season when natural gas demand and prices are lower. Energy traders also take advantage of the low prices during the summer to purchase and store natural gas, and then sell it when demand increases and prices rise, thereby making a profit.
But this year, the escalating situation in the Middle East has led to an increase in international natural gas prices. As a result, the EU has purchased less natural gas, and the natural gas reserves of EU member states have fallen below the five-year average level. Analysts say that as temperatures rise and air conditioning usage increases, Asian countries’ demand for natural gas will also grow rapidly, putting the EU in an even more difficult situation.
Reports indicate that Asian countries mainly import natural gas through long-term supply agreements. However, the surge in demand and the reduction in reserves may lead Asian countries to purchase more natural gas from the spot market. This year, Europe has become even more dependent on the spot market to ensure its natural gas supply. In the spot market, a surge in demand often leads to price increases, which could lead to direct competition between Asia and Europe.
Analysts believe that if Asia's demand growth coincides with Europe's panicky purchases at the end of summer, it could trigger a cross-continental “gas spot market battle”. Tobias Federico, chief analyst at Montel Energy, said that in order to achieve its gas storage targets, the EU may be forced to compete for gas spot markets with higher bids.
On May 2nd, at the Megara terminal in Greece’s Reviso, an LNG transport vessel from the Liberty Port liquefied natural gas terminal in the United States was unloading.
However, if the situation really escalates into a 'direct confrontation' between European and Asian economies, the EU is likely to be at a disadvantage. Politico.net points out that the EU has little leverage over energy importers within its territory, as these importers are spread across 27 member states, each with different interests.
After the Russo-Ukrainian conflict began in 2022, the European Union established an aggregate procurement platform called AggregateEU, aiming to enable private enterprises to negotiate collectively for better natural gas prices in the international natural gas market. The AggregateEU platform is popular among small import companies with limited resources, but large corporations are reluctant to use this platform.
German energy giant SEFE's communications director, Christoph Gottschier, said: "Although we have initiated several rounds of negotiations, no substantive deals were reached in the end. This further confirms our assessment that the natural gas market can self-regulate effectively without intervention."
Two EU officials revealed that the AggregateEU platform has been deactivated. However, after the United States launched military strikes against Iran, the European Commission considered re-launching the platform. Nevertheless, these two officials admitted that the EU cannot force companies to use this platform.
One official stated that many European energy importers are concerned that coordinating on the AggregateEU platform might be perceived as "collusion" and that the European Commission can only help companies avoid violating complex competition regulations through informal channels.
EU officials are also unable to negotiate directly with Asian countries, which gives Asian nations a greater advantage in competition. An EU official pointed out that during crises, Asian countries can instruct energy companies to take action, but the EU can only coordinate and encourage them, unable to respond to crises like Asian nations such as China.
Analysts told Politico that negotiations between the United States and Iran could ease tensions, but there are signs that Asian buyers are gradually entering the natural gas spot market. Charles Kostrus, a liquefied natural gas analyst at market analysis firm Kpler, said it is expected that South Korea, Thailand, and Vietnam will seek more supply of liquefied natural gas during the summer.
Both the European Union and analysts believe that China may have a significant influence on the trend of the natural gas market. After the escalation of tensions in the Middle East, China reduced its natural gas imports and instead relied on its vast strategic reserves, playing an important role in stabilizing the international market. If China's demand for natural gas imports increases again, it will have a significant impact that cannot be ignored.
The Association of European Energy Regulators (ACER) estimates that to achieve the EU’s gas storage targets, the EU’s liquefied natural gas imports this year may increase by 13% compared to 2025. According to Politico News Network, it will be difficult for the EU to meet its targets when natural gas exports from the Persian Gulf have not yet resumed and competition for natural gas supplies is becoming increasingly intense.
Total Energy Group CEO Patrick Pouyanne recently told French lawmakers that the EU will be in trouble if it cannot restore energy supplies from Qatar soon. Pouyanne said, "I don't think natural gas prices will skyrocket to the levels of 2022, but I also don't expect them to fall as much as fuel prices."
According to Seb Kennedy, founder of the company Energy Flux, a complex situation may once again drive up natural gas prices. The EU's natural gas reserves may be exhausted. "We could see more aggressive purchases of liquefied natural gas, leading to an even greater shortage in global market supply. In such cases, the EU might abandon its gas storage plans, delaying the problem until winter."
