Europe is struggling to fill its natural gas stores ahead of winter, raising the risk that competition with Asia for supplies will push prices above 100 euros (around $117) per megawatt-hour for the first time since its energy crisis four years ago.
European benchmark Dutch TTF futures climbed above 68 euros per megawatt-hour on Tuesday, the highest level since early 2023, before easing slightly.
A cold winter combined with continued supply constraints could send prices to between 90 and 120 euros per megawatt-hour, Tancrede Fulop, senior equity analyst at Morningstar, told CNBC.
Analysts at Goldman Sachs said in a note published Sunday that if Middle East LNG exports "normalize only gradually through 2027," natural gas futures would need to rise above 100 euros per megawatt-hour to curb Asian demand enough for Europe to manage its storage levels through winter.
The worry for Europe is that for now, its gas inventories are historically low.
Disruptions to shipping through the Strait of Hormuz have sharply curtailed LNG exports from key Gulf producers such as Qatar during Europe's gas-storage refill season.
The continent's sweltering summer has meanwhile boosted demand for air conditioning and other energy-hungry appliances at a time when demand for gas, widely used for Europe's heating and cooking needs, naturally falls. Gas accounts for around a sixth of the EU's electricity generation.
Weather conditions have also put alternative energy sources in shorter supply. The heat has caused a fall in nuclear generation, with power plants forced to shut down or reduce production across the region, while wind power generation has been weak over the summer.
That has left European Union gas stores at about 63%, according to data from Gas Infrastructure Europe, one of the lowest levels on record for this time of year and roughly 18 percentage points below the five-year average.
"Europe is currently on track to start the winter with an inadequate storage buffer against late winter cold, particularly because the amount you can withdraw from storage on a peak demand day diminishes the emptier storage gets," Matt Drinkwater, head of European Gas at Energy Aspects, told CNBC by email.
There is a possibility that the strengthening El Niño weather event creates a mild early winter in northeast Asia which reduces demand, Drinkwater said. But it "also raises the risk that late winter will be colder than usual," he added.
Hopes of Hormuz reopening
A crucial variable is whether significant LNG volumes from the Middle East return before winter.
Both crude oil and natural gas futures moved lower on Wednesday on expectations for Iran and Oman to strike a deal to secure safe transit through the Strait of Hormuz.
A meaningful recovery in Middle East LNG exports would mean that, while Europe is still likely to start winter with "uncomfortably low stocks," the region could preserve more of its inventories for peak cold weather in January and February, Drinkwater said.
But little is certain given the volatile geopolitics surrounding the vital trade waterway.
If Middle East LNG flows fail to return to high levels before winter, Europe would face very high gas prices, higher consumer bills and, in a worst-case scenario, limits on industrial gas consumption, Drinkwater said.
Competition with Asia for LNG cargoes will also remain intense because global supply growth is limited over the next 12 months. New developments in Qatar are not expected to reach full capacity before the second half of 2027, according to consultancy Wood Mackenzie.
The firm described Europe as "approaching energy crisis territory" with few near-term alternatives to its gas needs, just as its deadline for the prohibition of all Russian LNG imports looms at the start of 2027.
At current prices, Europe retains a slight advantage over Asia in attracting flexible LNG cargoes from the U.S., Morningstar's Fulop said, after accounting for the higher shipping costs of sending those supplies to Asia.
But Europe will require far more U.S. LNG if other supplies remain constrained.
"We estimate Europe would need around 64 [billion cubic meters] of US LNG, equivalent to roughly 77% of total U.S. exports," Fulop said.
"Attracting such an unusually high share would require Europe to offer a materially higher netback than Asia. At the upper end of the range, high prices would also start to balance the market through industrial demand destruction and fuel switching," he said.