European gas prices have surged nearly 50% over the past month amid intensifying concerns about winter supply shortages and ongoing disruptions in the Strait of Hormuz. The benchmark Dutch TTF contract rose to over €62 per megawatt hour, reaching levels close to those seen during the early stages of the conflict involving Iran. Gas prices in the United Kingdom followed a similar trajectory, climbing to 151.29p per therm. This increase in gas costs contrasts with Brent crude oil, which rose about 20% in the same period to just above $93 a barrel.
The rise in prices is attributed to a tightening of the global gas market driven by several factors. Europe has experienced heatwaves that have pushed up electricity demand for air conditioning while also reducing output from parts of France's nuclear fleet, leading to greater reliance on gas-fired power plants. Additionally, market sensitivity has increased due to the recent escalation in tensions in the US-Iran conflict, which has significantly reduced traffic through the strategically important Strait of Hormuz.
Christoph Halser, a gas analyst at Rystad Energy, noted that the market’s reaction differs from earlier in the year when demand was lower after winter. With the European winter heating season approaching, supply concerns are mounting. Europe faces competition for liquefied natural gas (LNG) supplies from Asia, where summer heatwaves have similarly boosted electricity demand, causing some LNG shipments initially destined for Europe to be redirected to Asian buyers willing to pay higher prices. However, Halser indicated that prices in Europe have not yet reached levels that would draw LNG cargoes back from Asia.
Efforts to replenish European gas storage ahead of winter have been hampered by high prices. Germany aims to have storage facilities filled to 70% capacity by early November but currently stands at around 45%. Norwegian energy company Equinor, the largest gas supplier to Europe, warned that the region risks failing to meet these targets, potentially exposing markets to significant price volatility when colder weather arrives. Equinor’s Chief Financial Officer, Torgrim Reitan, described the situation as "vulnerable" and expressed uncertainty about how Europe will enter the winter season.
The International Energy Agency (IEA) also highlighted the risks of prolonged disruptions, cautioning that continued delays in resuming full Gulf exports could keep gas markets tight for an extended period. Rystad's base-case forecast assumes that the Strait of Hormuz will reopen before the fourth quarter of 2023, allowing full LNG production from Qatar to resume. However, if the closure persists, Europe’s storage targets may remain out of reach despite improvements in consumption patterns. Since the Russian invasion of Ukraine, Europe has reduced annual gas consumption by roughly 20% and increased its LNG import capacity, factors that may moderate the impact of supply constraints but do not eliminate concerns ahead of winter.