FEATURE: Gas storage fill rate, LNG imports key metrics for Europe in Q3

Europe is entering the third quarter of 2025 with gas storage levels well down on the past two years, but with demand still subdued, LNG imports set to be strong and Brussels signaling new flexibility around storage targets, the market may be able to avoid any scramble to refill stocks ahead of the next heating season.

It comes as the global economic outlook also remains uncertain, given the upcoming expiry of US President Donald Trump's tariff pause in early July and ongoing geopolitical risk in the Middle East.

As of June 28, the EU's gas storage facilities were filled to 58.2% of capacity, according to data from Gas Infrastructure Europe.

That is well down on stock levels at the same time in 2023 (76.6%) and 2024 (76.8%).

The fill rate accelerated in June in particular, averaging more than 30% higher than the rate in the previous two years.

"Given the looser global LNG balance than had been expected -- primarily a result of weak Chinese LNG demand -- we expect LNG deliveries into Europe to be high enough without a strong risk of price escalation during Q3 to maintain this rate of storage through July and August," Alun Davies, S&P Global Commodity Insights' research and analysis director, said.

Davies said this would allow storage fill to reach the minimum targeted EU levels without any need for buy-side intervention from member states.

According to Commodity Insights analysis, EU and UK gas stocks are expected to reach 86% of capacity by the end of October.

It remains to be seen whether the EU will adopt its revised storage regulation in time to impact the rate of filling this summer, but current rules allow a five percentage point deviation from 90%.

The EU Parliament and Council agreed a provisional deal on June 24 introducing new flexibility around the 90% filling target, allowing a deviation of ten percentage points and a further deviation if negative market conditions persist.

However, an EU source said that while the agreement could be signed off and published in the EU's Official Journal before the summer break, "it could be tight".

Meanwhile, Germany -- which has the biggest gas storage capacity in the EU -- has imposed its own storage targets that vary from site to site, but provide for an average filling target of 70% by Nov. 1.

Storage fill in Europe will likely be supported by expectations of strong LNG supplies in Q3.

LNG imports into Europe are set to increase by over 50% year over year in Q3, according to Commodity Insights forecasts, though Asia could again compete for cargoes with the Platts JKM at a steady premium to the Northwest Europe marker.

Norway, meanwhile, remains a risk factor and is set for a relatively heavy planned maintenance schedule from the end of August until late September, which will take up to 115 million cu m/d of capacity offline.

Any extension of works -- which has been a feature of previous summer maintenance periods -- could spook the market waiting for full Norwegian supply capacity to be restored.

Traders have also pointed to US LNG export risk with the potential for hurricane-related disruption.

On the demand side, European consumption is set to remain weak, with Commodity Insights forecasting a 1% year-over-year drop in total demand in Q3.

Weakness prevailed in industrial gas demand in Q2, falling 6.7% year over year, and in the largest industrial consuming markets of Northwest Europe and Italy, gas demand is expected to decline 2% year over year in Q3.

Heat scenarios

Meanwhile, European power markets enter Q3 at a slight premium to last summer, with forward contracts still mainly driven by the gas price.

Growing oversupply from solar deflated spot power prices in Q2 amid sluggish demand, resulting in record numbers of negative hourly prices.

But rising seasonal demand for cooling already reversed that trend in late June as a first heat wave lifted spot prices.

"In the context of geopolitical tumult, European power supply/demand dynamics can be easily overlooked, but they have delivered their own flavor of volatility to prices," said Glenn Rickson, head of European power short-term analytics at Commodity Insights.

Demand across 10 European markets is forecast to rise by only 1.2% year over year, assuming five-year average temperatures.

But in a heat wave scenario, demand could increase by 2% versus 2024, skewed toward Southern European markets and cooling demand.

"We see a 4-GW lift in gas generation and price upside weighted to Spain and France," Rickson said, referring to a scenario that uses summer 2022/23 temperatures.

France bears the biggest upside risk given its discount to other markets, with Q3 going into delivery below Eur50/MWh ($59/MWh) compared to Eur120/MWh for Italy. The heat wave scenario lifts average French July and August prices by Eur14/MWh.

Heat-related supply risks, meanwhile, are focused on French river-cooled reactors, with operator EDF already warning about restrictions at four sites for environmental reasons due to rising river temperatures.

Overall, however, French nuclear availability remains robust with the 39-GW average output forecast already factoring in restrictions and curtailments.

"Our heatwave scenario assumes 2.5 GW of nuclear unavailability across two weeks in July and August, but our view of total nuclear production does not fall due to the fleet still flexing during periods of oversupply," said Annika Amin, French power analyst at Commodity Insights.

"Temperature-related outages beyond our assumption may impact production this summer," Amin said.

In Q2, such reactor flexing hampered output with generation falling year over year despite higher availability. France's new 1.6-GW Flamanville-3 remains in testing.

Elsewhere, Belgium's 1-GW Doel-4 reactor was to halt production July 1 as its license expires, but will return in November for a 10-year lifespan extension alongside Tihange-3, set to return mid-July.

Heat waves will also impact hydro with output forecast sharply lower for most markets despite high reservoir levels in Iberia.

But solar itself could provide the biggest upside this summer amid strong capacity gains. Negative hourly prices, already exceeding last year's total, and curtailment are set to ease in Q3 due to the higher demand.

Overall, combined solar and wind supply gains forecast for Q3 are to balance less hydro and nuclear, with little upside seen for gas and coal in Q3, according to the base case by Commodity Insights analysts.

Carbon compliance

In carbon, EU Allowances rose steadily in June after a bearish start to the second quarter. Geopolitical tensions and rising gas prices pushed EUAs to four-month highs of around Eur76/mtCO2e in mid-June, but prices later dipped due to fragile demand signals.

But in Q3 prices are likely to see some uplift due to increased buying interest from industrial operators ahead of the Sept. 30 compliance deadline to surrender allowances.

This, combined with high cooling demand in Southern Europe and the risk of reduced nuclear output, could inject more bullishness into the carbon complex.

Analysts at Commodity Insights expect EUAs to average Eur75/mtCO2e and Eur85/mtCO2e in Q3 and Q4, respectively.

"A seasonal increase in demand is anticipated, leading up to the Sept. 30 compliance deadline," they said in a recent report. "The fundamental drivers of tightening supply and compliance demand suggest a sustained upward trend for the rest of 2025, despite potential short-term volatility from economic conditions and energy market fluctuations."

Meanwhile, after months of speculation, the UK government and EU in May agreed to link their respective emissions trading systems, pushing UK carbon prices to new highs. But with no clear timeline on when this alignment might take place, the price rally for UKAs dissipated.

UK carbon allowance prices dived to a two-month low of below GBP50/mtCO2e by end-June, but most traders and analysts estimate prices to stay around these levels for Q3.

"This equilibrium is anticipated due to counteracting forces: upward pressure from increasing gas prices and a reduced supply of UKAs, balanced by lower thermal power generation typically observed during the summer months," analysts at Commodity Insights added.