The "gas shortage" crisis is worsening—will Europe's 2022 nightmare return?

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The flames of war in the Middle East are spreading, and Europe's natural gas market is facing its most severe supply shock since 2022. With Qatar suspending production, the Strait of Hormuz being obstructed, and Russia threatening to cut off supplies, European gas storage inventories have fallen to their lowest seasonal levels in recent years, casting the shadow of another energy crisis over the continent.

Since the US and Israel launched attacks on Iran, Europe's natural gas benchmark price, TTF, has surged by 67%, once exceeding 54 euros per megawatt-hour, reaching its highest level since 2023.

Previously, Qatar Petroleum announced the suspension of liquefied natural gas (LNG) production due to attacks on its facilities, and actual shipping through the Strait of Hormuz has come to a standstill. This critical chokepoint carries about one-fifth of the world’s LNG trade. At the same time, on Wednesday, an LNG tanker originally bound for France abruptly turned to Asia, marking the first rerouting on the Atlantic route.

Adding to market jitters, on March 4, Russian President Putin stated that since the EU will eventually ban imports of Russian natural gas, Russia might as well "cut off" supply to Europe proactively and turn to emerging markets. Currently, European gas storage is at just 30%, 15 percentage points below the average for this time of year over the last five years. The crucial window intended for restocking has become even more challenging under the dual pressures of supply contraction and soaring prices.

Soaring energy prices threaten to spark a resurgence in inflation. In February, eurozone consumer prices unexpectedly accelerated year-on-year to 1.9%, surpassing expectations even before this wave of energy price rises. European Central Bank Chief Economist Philip Lane has warned that a prolonged conflict in the Middle East could trigger "an energy-driven surge in inflation and a sharp decline in output." European stock markets slumped more than 3% on Tuesday, and government borrowing costs in the UK, Italy, Greece, and other countries all jumped in tandem.

Qatar's Production Halt Hits Global LNG Supply Chain

The direct trigger of this crisis is Iran's retaliatory strike on Qatar's energy facilities.

State-owned QatarEnergy announced on Monday that, due to attacks on two facilities, it had suspended LNG production. Qatar is the world’s second-largest LNG supplier, and the shutdown of its core export hub Ras Laffan has sent global gas markets reeling.

Although LNG imports from Qatar only account for about 8% to 10% of the EU’s total supply, the global LNG market is highly interconnected, so the ripple effects of local supply cuts far exceed what the direct proportion might suggest. According to euro news, energy monitoring agency analyst Baird Langenbrunner said that Qatar's production halt "will have substantial knock-on effects on the global LNG market until production is restored, and it's not clear when that will be."

Meanwhile, shipping through the Strait of Hormuz—a global energy “chokepoint”—has effectively come to a halt. This passage handles one-fifth of global LNG shipments. Its closure means the energy artery from the Middle East to the world has been cut off. Trump publicly stated that US military actions against Iran will last "far beyond" the expected five weeks, further fueling concerns about long-term supply interruptions.

Morgan Stanley warns in its latest report that current TTF prices mainly reflect only one to two weeks of interruptions. In an extreme scenario, if Qatar's production shutdown lasts for several months, TTF could spike to 100 euros, or approach the squeeze experienced in 2022. However, the bank also noted that Europe's current fundamentals are more robust than in 2022, and supply-demand imbalances are unlikely to be as severe.

Asia Joins the Scramble, Europe May Face Bidding War

Qatar is one of the most important LNG sources for major Asian economies such as China, Japan, South Korea, and India. In the wake of supply disruption, Asian buyers have no choice but to turn to other sources and directly compete with Europe for supplies.

Signs of a bidding war are already appearing in the market. According to the Financial Times, commodity data firm Kpler says an LNG tanker loaded with Nigerian LNG—the "BW Brussels"—originally bound for France suddenly turned around via the Cape of Good Hope for Asia on Wednesday. This is the first case of a reroute from the Atlantic to Asia and marks the escalation of competition between Asia and Europe for gas supplies.

Commodity analyst Natasha Fielding at Argus Media pointed out, "Europe will have to outbid Asia to adequately refill its storage before the next winter arrives."

European and Asian natural gas prices soared in tandem this week, as did LNG tanker charter rates. By contrast, the US, with abundant shale gas production, has maintained its status as an energy exporter, with relatively stable domestic gas prices and little impact from the crisis.

Putin Threatens to Cut Off Gas, Europe Caught in a Double Bind

Just as market nerves were already strained, Russia threw another curveball.

According to CCTV International News, Russian President Putin said in a March 4 interview that the current rise in oil and gas prices is the result of restrictions on Russian energy combined with US and Israeli actions against Iran. He then issued a warning: since the EU will inevitably ban imports of Russian natural gas, Russia might as well cut off gas supplies to Europe first, and instead turn to emerging markets.

Although Putin's statement was characterized as an offhand remark, its psychological impact at such a sensitive market moment cannot be underestimated. Analysts note that if Russia acts before the ban comes into effect, the pressure on Europe to replenish stocks will intensify sharply.

According to Xinhua, on January 26, the 27 EU countries officially passed legislation to completely ban imports of Russian pipeline gas and LNG. The full ban on LNG will take effect in early 2027 and on pipeline gas in autumn 2027.

Reuters reports that analysis firm Rystad believes that, in an extreme scenario, the EU could theoretically expand Russian LNG imports, but this would be politically explosive, would meet clear US opposition, and is considered "highly unlikely."

Refilling Window Meets High Price Pressures, Gas Storage in Peril

This crisis erupted when Europe’s gas storage was especially low.

According to Gas Infrastructure Europe data, current EU gas storage stands at less than 30% of total capacity, well below the five-year average of about 45% at this time of year. Germany's storage caverns are only 21% full, the lowest seasonal level since records began in 2017; reserves in the Netherlands, Sweden, Croatia, Latvia, and other countries are also stretched thin. Italy is highly exposed—more than one-third of its total LNG imports come from Qatar.

Simeone Tagliapietra, senior researcher at the Bruegel think tank, said: "Storage has never been this low at this time of year. Work to refill storage for next winter must begin now. Doing so at such high prices will pose a heavy burden on Europe."

The European Commission has urgently convened a meeting of energy experts, requiring member states to submit national storage assessment reports. Whether to restore the mandatory storage targets established after the 2022 crisis (but relaxed last year) is expected to become a core topic.

Capital Economics estimates that if gas prices remain at current levels, eurozone inflation could rise by 0.5 percentage points. Earlier, eurozone February CPI had already exceeded expectations, hitting 1.9% year-on-year. ECB Chief Economist Philip Lane also warned that a prolonged Middle East war could trigger "a major energy-driven leap in inflation and a sharp drop in output."

However, some officials have made relatively optimistic assessments. One EU official said it is still possible to refill storage to 90% ahead of next winter; a senior energy trader noted that “normally, net drawdowns stop after the end of March, and with the current warm weather, we’ve basically already stopped withdrawing gas.”

The Ghost of 2022 Returns: What’s Different This Time?

With multiple factors converging, fears are rising that Europe’s 2022 energy crisis could return.

Bruegel’s Tagliapietra said bluntly: “After the energy crisis, Europe breathed a slight sigh of relief, but now we find ourselves possibly at the start of another crisis.” Oxford professor Jan Rosenow described the current situation as "a bit of déjà vu."

In 2022, after the Russia-Ukraine war broke out, Russia drastically cut pipeline gas supplies, and European gas prices once soared to 348 euros per megawatt-hour in August, with inflation peaking at around 11%. The EU was forced to act hastily—countries rushed to build floating LNG terminals, Germany completed its first such terminal in just 194 days, and governments provided hundreds of billions of euros in subsidies to shield industry and residents from price shocks.

EU officials emphasize that today's situation is fundamentally different from 2022: back then, Europe had to scramble to build replacement supply chains from scratch; whereas now, supply chains are much more diverse, about 58% of EU LNG comes from the US, dependence on Russia has fallen from 45% in 2021 to 13% last year, and overall supplies are much more abundant. Elisabetta Cornago, deputy director at the Centre for European Reform, said: "The core issue in this crisis is prices, not an immediate gas supply shortage."

Nevertheless, high gas prices may still hit the European economy hard. EU industrial electricity prices are now about twice those in the US and 1.5 times those in China, and further energy cost increases will squeeze European manufacturing’s competitiveness. Industrial giants like Siemens Energy and BASF have been among the worst performers in Europe this week. Capital Economics estimates that if gas prices remain unchanged, eurozone inflation could rise by about 0.5 percentage points, and markets are increasingly betting the ECB will maintain higher rates to contain inflation.

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