Natural gas prices in Europe need to rise significantly by December for European storage to reach sufficient inventory levels for the upcoming winter, especially if the Strait of Hormuz crisis continues and keeps spot LNG prices in Asia elevated. This is according to Goldman Sachs.
Europe has been losing the competition for spot LNG supply to Asia since the Middle East crisis began, with prices spiking due to the absence of most Qatari LNG term volumes. The conflict in Iran and increased competition from Asia have emerged just as Europe is attempting to build its natural gas inventories during the spring and summer for the following winter.
Data from Gas Infrastructure Europe indicates that current storage levels are approximately 62% full. This is the lowest level for this time of year in nearly two decades and is well below the five-year average. In fact, current inventory levels are at a 17-year low, with available supply for purchase being tighter than in 2022. Europe needs to begin purchasing gas now to avoid potential shortages.
The LNG squeeze and supply uncertainty have directly impacted prices. Europeans are now competing with Asian gas buyers for a limited volume of LNG and are currently losing this competition.
Goldman Sachs analysts stated in a note over the weekend that current benchmark natural gas prices in Europe at the Dutch Title Transfer Facility (TTF) "will not be enough for Europe to manage storage through winter." They estimate that if Middle East energy exports only gradually normalize through 2027, the December 2026 TTF price would likely need to exceed €100/MWh. This is 110% higher than Goldman Sachs' base case of 50 euros per MWh.
As of Monday morning, Europe's benchmark natural gas prices, the Dutch TTF Natural Gas Futures, were up by 1.5% at $78 (66.85 euros) per MWh, which is considerably lower than the $116 (100 euros) per MWh price Goldman estimates would incentivize accelerated stockbuilding in the coming months.
