Europe grapples with low gas storage levels. German government prepares measures to safeguard security of supply

With disruptions to liquefied natural gas (LNG) supplies from the Persian Gulf continuing, Europe is still facing strong competition from demand in Asia. LNG deliveries to Europe have therefore been relatively weak in recent months, negatively affecting gas storage levels. It is already almost certain that Europe will not fill its storage facilities to 90% before winter, as it did in previous years. Amid growing concerns over security of supply, the German government is reversing course and no longer wants to leave the solution to the market alone. The situation in neighbouring Germany is also significant for security of supply not only in Czechia, but across Europe.

After Europe lost the vast majority of its natural gas supplies from Russia in recent years, it suffered another blow this year. The global liquefied gas market has faced significant supply restrictions since the start of the war between the US and Iran. Before the war broke out, Qatar and the United Arab Emirates accounted for roughly one-fifth of total LNG volumes supplied to the market.

Germany in particular is struggling with low gas storage levels. It is the EU's largest consumer of natural gas and also has the largest storage capacity, accounting for just under a quarter of the bloc's total storage capacity. Until recently, the German government had rejected any intervention, leaving the current situation entirely to the market. It is now no longer ruling out intervention.

"We are preparing the necessary measures so that they can be activated quickly and in a targeted manner should the situation deteriorate. If the key risk factors for security of supply worsen significantly, the state can and will respond," the German Energy Ministry said in a statement on social network X, according to S&P Global.

Just a few days before this announcement, the German ministry reportedly warned that hasty government intervention was not a risk-free tool. State-organised gas purchases could drive up prices, as happened in the summer of 2022. The ministry therefore said that state intervention must be carefully considered and that gas supply during the winter remains, for now, the market's responsibility.

As for the measures currently being prepared, the German Energy Ministry provided no specific details. In the longer term, however, the German government is preparing to establish strategic gas reserves, similar to those for oil and other commodities. These are expected to total 24 TWh, equivalent to roughly one-tenth of Germany's storage capacity. The government said, however, that it expects to begin filling the reserve no earlier than next summer.