According to the SDIC Futures Research Institute, following the outbreak of the U.S.-Iran war this year, the disruption of Middle Eastern natural gas supply has dealt a massive blow to non-U.S. natural gas markets. Before the winter heating season arrived, the European benchmark Dutch TTF broke through 100 euros per megawatt-hour, hitting a near four-year high, with cumulative gains of 270% so far this year.
Currently, a more serious problem is that ahead of the winter heating season, European natural gas inventories are at historically low levels for this time of year, 17% below the five-year average. The EU's gas storage rate has only reached 75%, 15% below the five-year average, and the pace of storage injections has slowed markedly over the past few weeks. This means that Europe's storage and peak-shaving capacity will become extremely fragile this winter. With Middle Eastern gas supply missing and entering winter with low inventories, once a cold snap occurs, Europe's natural gas supply will face even harsher tests.
Middle Eastern Gas Supply Cut Off After the U.S.-Iran War
The outbreak of the U.S.-Iran war this year has caused tight natural gas resource supply in non-U.S. markets. Before the war, Middle Eastern LNG exports accounted for 24% of global LNG trade. Among them, Qatar, as the world's second-largest LNG exporter, accounted for 20% of global LNG trade, with 80% of its exports going to Asian countries. China sourced 24% of its LNG imports from Qatar, and Europe also sourced 10% of its LNG imports from Qatar.
After the U.S.-Iran war broke out, Iran's closure of the Strait of Hormuz directly curbed Middle Eastern LNG exports. Especially in the early stages of the war, natural gas production facilities at Qatar's Ras Laffan Industrial City—home to the world's largest liquefied natural gas production facility—were attacked, causing Qatar's LNG exports to be almost entirely interrupted. Following the attack, QatarEnergy declared force majeure on long-term LNG supply contracts with China, Italy, Belgium, South Korea, and others, and continuously extended the performance timeline.
The vast majority of Middle Eastern natural gas exports come from LNG, which must transit through the Strait of Hormuz. Only Qatar, the UAE, and Iran have limited PNG exports. Unlike the detouring and ship-to-ship (STS) operations used for Middle Eastern crude tankers, dark fleet navigation for LNG carriers carries extremely high risks. Once a collision occurs, the release of high-pressure, low-temperature natural gas could trigger catastrophic explosions, with consequences more severe than crude oil spills. Moreover, STS operations for LNG carriers require demanding conditions, are time-consuming, and involve higher operational costs. Therefore, dark fleet navigation and STS operations for LNG carriers are merely emergency measures and cannot replace normal strait transit on a large scale like crude oil. Consequently, with shipping through the Strait of Hormuz still facing extremely high risks, Middle Eastern LNG export supply remains unable to recover.
Europe Actively Cuts Off Russian Natural Gas Supply
In January this year, the EU Council approved regulations on gradually halting imports of Russian liquefied natural gas and pipeline gas. Short-term natural gas import contracts were fully stopped in the first half of this year. Starting January 1, 2027, the EU will stop long-term contract imports of Russian liquefied natural gas, and starting September 30, 2027, the EU will stop long-term contract imports of Russian pipeline gas.
Before the Russia-Ukraine war, nearly 50% of Europe's natural gas imports came from Russia; this has now dropped to only about 10%. Europe has actively cut off Russian natural gas supply and turned to global LNG procurement, including from the United States and the Middle East. The share of natural gas imported by Europe from the United States has risen from 7% before the Russia-Ukraine war to over 50% of LNG imports currently. Although Europe's dependence on Middle Eastern natural gas imports is currently less than on the United States, the disruption of Middle Eastern natural gas supply further increases Europe's reliance on U.S. natural gas imports while also intensifying competition for natural gas resources in non-U.S. markets.
Europe's Winter Gas Storage Severely Insufficient
Due to the missing Middle Eastern supply and rising natural gas prices, after the U.S.-Iran war, Europe's natural gas injection volumes have continued to fall below historical levels for the same period. Even during the summer when demand is relatively sluggish, natural gas injection volumes remained low, corresponding to European natural gas inventories persistently below historical levels for the same period. Currently, European natural gas inventory levels are 17% below the five-year average. Natural gas inventories in Germany, France, and the Netherlands are all at historically low levels for the same period. The EU's natural gas storage rate is only 75%, 15% below the five-year average, with Germany and the Netherlands at only 61% and 66% respectively. According to EU requirements, before winter arrives (before December), the storage rate needs to reach 90%, which can be relaxed to 80% under special circumstances.
As supply tightens and temperatures drop, more natural gas is being consumed, and Europe's natural gas injection volumes continue to decline. Correspondingly, the EU's natural gas storage pace has slowed significantly over the past two weeks. This means that Europe's natural gas storage levels this winter will struggle to meet requirements, and supply buffer capacity has been weakened.
European Residents Heavily Dependent on Natural Gas for Winter Heating
Over the past decade or so, under the advancement of energy consumption structure transformation in Europe, the growth of traditional fossil energy consumption has slowed significantly. Especially after the 2022 Russia-Ukraine war, due to the decline in Russian oil and gas supply to Europe, Europe's oil and natural gas consumption both weakened passively. This in turn brought a rapid increase in renewable energy consumption in Europe, with its share in primary energy consumption rising from 3% in 2000 to 13% in 2024, further weakening traditional fossil energy consumption.
Even so, natural gas remains the second-largest energy source consumed in Europe after oil. Especially in winter, natural gas is widely used for residential heating, so winter weather changes have a direct impact on European natural gas prices. This year, under strong El Niño weather expectations, mainstream market forecasts believe that European temperatures overall are expected to be warmer, but the risk of periodic severe cold and cold snap weather in January-February has increased. In past years with ample inventories, this would not be a concern, but this year is different. European natural gas inventories are at historical lows, EU natural gas storage is severely insufficient, and peak-shaving capacity has declined. Once periodic cold snap weather occurs, Europe's natural gas supply tightness will intensify.
Intensifying Competition for Natural Gas Resources Between Europe and Asia
The disruption of Middle Eastern natural gas supply has directly intensified competition for natural gas resources in the international market, mainly between Europe and Asia. As the world's largest LNG exporter, the United States, with its ample natural gas supply and continuously improving LNG export capacity, has become the primary supplementary source in the international market amid the missing Middle Eastern natural gas supply.
Whether natural gas resources flow to Europe or Asia mainly depends on cross-market natural gas price spreads. After the U.S.-Iran war broke out this year, the price spreads between Asian and European natural gas versus U.S. natural gas both widened significantly, recently reaching as high as 30 dollars per million British thermal units. Enormous cross-market arbitrage profits continue to drive U.S. natural gas exports higher. The Europe-Asia natural gas price spread determines whether natural gas resources flow more to Europe or Asia. Previously, Asian natural gas commanded a certain premium over European natural gas, but recently, as European natural gas prices have remained elevated, the Asian natural gas premium has narrowed noticeably. In winter, if Europe wants to obtain more natural gas resources, it needs a higher premium than Asia to drive international natural gas resources to flow in.
Comparison of the Two Rounds of European Gas Crises in 2022 and 2026
Both the 2022 Russia-Ukraine war and the 2026 U.S.-Iran war brought direct shocks to Europe's natural gas supply and prices, but the two crises are fundamentally different. After the 2022 Russia-Ukraine war, Russian pipeline gas supply to Europe was basically interrupted. At that time, Russian pipeline gas exports to the EU accounted for 40% of the EU's total imports. The direct impact of the Russian natural gas cutoff was enormous. However, at that time, under policy promotion, Europe had ample winter gas storage, with EU storage reaching as high as 95% by the end of October 2022. Although European natural gas prices briefly surged above 300 euros per megawatt-hour in late August 2022, they quickly fell back, returning below 100 euros per megawatt-hour by the end of December 2022.
After the Russia-Ukraine war, due to the cutoff of Russian pipeline gas, Europe gradually turned to relying on global LNG resources, including Middle Eastern LNG. After the 2026 U.S.-Iran war, due to the closure of the Strait of Hormuz and the attack on Qatar's liquefied natural gas facilities, Middle Eastern LNG exports to Europe were basically interrupted. More seriously, before this year's winter, European natural gas inventories were at historically low levels for the same period, with the EU's natural gas storage rate at only 75%, 15% below the five-year average. This means that the safety margin for Europe's natural gas supply this winter is extremely fragile.
No Substantive Change in the U.S.-Iran Issue Yet, This Winter's European Gas Supply Faces Severe Tests
The U.S.-Iran war has lasted for 8 months. Although both sides still maintain private contacts and have not ruled out the negotiation option, no clear resolution path is currently visible. The Strait of Hormuz remains closed, Middle Eastern natural gas supply remains interrupted, and there is currently no export alternative similar to crude oil. Qatar's long-term natural gas supply continues under force majeure.
Meanwhile, Europe's pre-winter gas storage is severely insufficient, and the storage pace has already begun to slow recently. Europe's natural gas supply this winter will be extremely fragile. In winter, European residents are highly dependent on natural gas for heating. Although under this year's strong El Niño expectations, mainstream market forecasts believe European temperatures overall are expected to be milder, the probability of cold snap weather in January-February is relatively high. Against the backdrop of low inventories, once periodic cold snap weather occurs in winter, the sharp rise in European natural gas demand will once again intensify the supply-demand imbalance in the natural gas market, and European gas prices will face the risk of spiraling out of control.
SDIC Futures Sui Xiaoying, Futures Investment Consulting Number: Z0024395
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