On May 2, 2026, the tanker LNG ENTERPRISE offloads liquefied natural gas from the Lake Freeport LNG Terminal in the United States to the Levitusa Terminal near Athens, Greece. LNG shipments from the United States to Europe have become critical as the Iran conflict disrupts global gas supplies.
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Europe is struggling to fill its natural gas reserves ahead of winter, and competition with Asia for supplies is raising the risk that prices could exceed 100 euros (about $117) per megawatt hour for the first time since the energy crisis four years ago.
Dutch TTF futures, Europe’s benchmark, fell slightly on Tuesday after hitting above 68 euros per megawatt hour, the highest level since early 2023.
Morningstar senior equity analyst Tancred Fulop told CNBC that a cold winter and continued supply constraints could push prices to between 90 and 120 euros per megawatt hour.
Goldman Sachs analysts said in a note on Sunday that if Middle East LNG exports “normalize only gradually until 2027,” natural gas futures prices would need to exceed 100 euros per megawatt hour to suppress Asian demand enough for Europe to manage storage levels through the winter.
The concern for Europe is that gas inventories are currently at historically low levels.
Transport disruptions through the Strait of Hormuz have sharply reduced LNG exports from major Gulf producers such as Qatar during Europe’s gas storage replenishment season.
Meanwhile, the continent’s sweltering summers have increased demand for air conditioners and other energy-intensive appliances as demand for gas, widely used for Europe’s heating and cooking needs, naturally declines. Gas accounts for about one-sixth of the EU’s electricity generation.
Due to weather conditions, alternative energy sources are also in short supply. The heat has reduced nuclear power production, forcing power plants to shut down or cut production across the region, while wind power has languished throughout the summer.
This brings the European Union’s gas distribution share to around 63%, one of the lowest levels on record for this period and around 18 percentage points below the average over the past five years, according to data from Gas Infrastructure Europe.
“Europe is currently on track to enter the winter with insufficient storage buffers for late-winter cold, especially as less can be drawn from storage on peak demand days and storage empties,” Matt Drinkwater, head of European gas at Energy Aspects, told CNBC via email.
Drinkwater said an intensifying El Niño phenomenon could lead to a milder early winter in Northeast Asia, which could reduce demand. However, he added, “There is also an increased risk that the end of winter will be colder than usual.”
Expectations for the reopening of Hormuz Island
A key variable is whether large volumes of LNG from the Middle East will return by winter.
Both crude oil and natural gas futures fell on Wednesday on expectations that Iran and Oman would strike a deal to ensure safe navigation through the Strait of Hormuz.
A strong recovery in Middle East LNG exports could allow the region to build up more stocks for the cold peak in January and February, although Europe is still likely to go into the winter with “uncomfortably low stocks,” Drinkwater said.
But given the volatile geopolitics surrounding the vital trade waterway, there are few certainties.
If Middle East LNG flows do not return to high levels by winter, Europe will face very high gas prices, increased consumer bills and, in a worst-case scenario, restrictions on industrial gas consumption, Drinkwater said.
Competition with Asia for LNG cargoes will also remain intense as global supply growth is limited over the next 12 months. New developments in Qatar are not expected to reach full capacity until the second half of 2027, according to consultancy Wood Mackenzie.
The company said Europe is “approaching energy crisis territory” with few immediate alternatives for its gas needs as the deadline for a ban on all LNG imports from Russia approaches in early 2027.
Morningstar’s Fulop said that at current prices, Europe retains a slight advantage over Asia in attracting flexible LNG cargoes from the United States, given the higher transportation costs of sending supplies to Asia.
But Europe will need even more U.S. LNG if other supplies remain constrained.
“Europe will need about 64 (billion cubic meters) of U.S. LNG, which is about 77% of total U.S. exports,” Fulop said.
“To capture such an unusually high share, Europe would need to offer significantly higher netbacks than Asia. At the upper end of the price spectrum, higher prices will also start to balance the market through industrial demand destruction and fuel switching,” he said.
