Europe is edging closer to another winter gas crunch as renewed disruption to shipments via the Strait of Hormuz tightens global LNG supplies, sending natural gas prices higher even as crude oil reacts more moderately, Wood Mackenzie strategists said in a note on Thursday.
Wood Mackenzie analysts said European benchmark gas prices have climbed above 60 euros per megawatt-hour ($20 per million British thermal units), their highest levels since the early stages of the Middle East conflict.
The analysts said the prices are more than 50% above levels seen after the US and Iran signed a memorandum of understanding in June.
The rally underscores the market's heightened sensitivity to supply risks at a time when Europe is entering the winter stock-building season with unusually low inventories and facing stronger competition from Asia for limited liquefied natural gas cargoes.
Wood Mackenzie analysts said the resilience of LNG supply is poised to be tested to the limits over the next six to 12 months.
The latest escalation between the US and Iran has once again disrupted shipping via the Hormuz, a critical transit route for Qatari LNG exports. Though hopes briefly emerged in June that tensions would ease following diplomatic efforts, renewed military strikes have stalled maritime traffic through the strategic waterway.
Unlike oil markets, where alternative supply options have helped temper price gains, natural gas markets have fewer short-term substitutes, leaving Europe particularly exposed to prolonged supply disruptions.
Wood Mackenzie identified three structural factors driving the latest surge in gas prices.
European gas storage sites are slightly above 50% full, well below seasonal norms and raising doubts over whether inventories can be sufficiently replenished before peak winter demand.
Simultaneously, Asian LNG demand has recovered to 2025 levels since April despite higher prices and reduced Qatari supply, intensifying competition with Europe for available spot cargoes.
Meanwhile, little additional LNG production is expected to reach global markets over the next year, with major new Qatari export capacity now projected to begin only in H1 2027.
Wood Mackenzie said even if Qatar resumes production quickly and restores most operations by the end of September, excluding two damaged liquefaction trains, European storage is expected to reach about 75% capacity by Nov. 1, well below the about 90% average recorded over the previous five years.
The consultancy said that should disruptions in the Strait continue for another two months, storage levels may struggle to reach even 70%, increasing the likelihood of elevated prices throughout the winter heating season and into 2027.
Such a scenario would intensify competition between Europe and Asia for scarce LNG cargoes. Though wealthier importing nations are projected to secure supplies through higher prices, emerging Asian economies could face demand destruction as LNG becomes prohibitively expensive.
Though Wood Mackenzie analysts stop short of comparing the situation with Europe's 2022 energy crisis following the outbreak of the Ukrainian war, they warn that market conditions are deteriorating.
Europe has expanded renewable generation significantly over the past four years, reducing the power sector's reliance on natural gas. The European Union has also unveiled an Electrification Action Plan aimed at nearly doubling electrification by 2040 while cutting gas demand by as much as 70%.