Europe could face a significant natural gas supply squeeze and be forced to pay sharply higher prices for liquefied natural gas if the Strait of Hormuz remains closed through the summer, Oxford Institute for Energy Studies strategists said in a note on Wednesday.
OIES analysts said the closure of the Strait of Hormuz late in February halted LNG exports from Qatar and the UAE, removing a major source of global supply and raising concerns about Europe's energy security.
Benchmark Dutch front-month gas prices surged about 50% immediately after the disruption but have since stabilized, supported by growing LNG supply from outside the Middle East, weaker Asian demand, and seasonally lower consumption during the northern hemisphere summer.
The institute said that market conditions could tighten significantly in the coming months as Europe enters its peak storage injection season and summer cooling demand increases.
"Higher European and Asian spot prices, above $20 per MMBtu, may be required to reduce demand and balance both the global market and European storage," the study said.
The main challenge for Europe is rebuilding gas inventories between May and October, the period during which storage facilities are typically replenished before the winter heating season.
The latest data from the OIES shows that Europe would need about 70 billion cubic meters of LNG imports during the six months to restore storage levels to about 80% of capacity by Nov. 1, broadly matching 2025 import levels.
However, under the OIES's central scenario, storage sites may reach about 70% full by the start of winter, reflecting the loss of Middle Eastern LNG volumes and intensifying competition for cargoes from Asia.
The institute said even achieving that 70% level would require LNG demand outside Europe to fall by around 13 bcm over the summer, equivalent to about 2.2 bcm per month.
The OIES said preliminary data for May showed little evidence of such demand destruction, with weaker LNG consumption in some markets offset by stronger buying in countries including Egypt and Thailand.
Meanwhile, European gas demand has remained remarkably stable over the past three summers despite being roughly 18% below pre-crisis levels recorded in 2021.
The OIES modeled three May-October demand scenarios, including a base case with consumption broadly in line with recent years and above 2025 levels, a high-demand case in which consumption rises 2.4% year-over-year, and a low-demand case in which consumption falls 6.8% year-over-year.
The largest uncertainty stems from the power sector, where gas demand will depend heavily on weather conditions and renewable energy output.
The OIES expects a hotter-than-normal summer, lower wind and hydroelectric generation, and stronger industrial activity could lift gas consumption. Stronger solar output, weaker economic growth, and milder autumn temperatures, on the other hand, could curb demand.
Europe's ability to offset the loss of Middle Eastern LNG volumes through alternative supplies appears constrained.
The OIES projects that domestic gas production and pipeline imports could provide only a modest boost compared with last year.
The institute said additional pipeline deliveries from Norway and North Africa could add about 3.1 bcm of supply during the six months, while lower re-exports of gas from Europe to Ukraine and Morocco could leave a further 2.9 bcm available within the region.