European gas prices may surge 50% as LNG supply risks mount, Rabobank says

Rabobank analysts warned the European natural gas market is underestimating the risk of supply disruptions that could push benchmark prices 50% higher by year-end.

The European gas market remains too complacent about tightening LNG supply and critically low winter inventories, according to Rabobank analysts who warned the full impact of supply disruptions has yet to be priced into futures.

"Reduced LNG inflows during the summer storage injection season could leave Europe entering winter with unusually low gas inventories, increasing the risk of shortages," Rabobank analysts said in a note published Wednesday.

The bank forecasts TTF prices, the European benchmark, to average around €60 a megawatt-hour in the third quarter and rise toward €69 by year-end, from about €46 currently. That trajectory implies a roughly 50% increase from current levels over the next seven months.

Prices are unlikely to normalize until 2028, when additional LNG supply from the U.S. and Qatar is expected to come online, the analysts said. In the interim, energy-intensive industries across Europe face the risk of sustained cost pressure, and regulators may need to consider intervention if storage levels fail to meet the European Union's 90% fill target by Nov. 1.

Storage Deficit Widens as Hormuz Disruption Persists

The supply concerns center on the Strait of Hormuz, which has been largely blocked to LNG shipments since late February following the U.S.-Israeli war on Iran. The disruption has removed about a fifth of global LNG supply from the market, intensifying competition between Europe and Asia for flexible cargoes.

European gas storage stands at 38.2% of capacity, well below the typical seasonal level of roughly 52% and far from the EU's 90% target by Nov. 1, Gas Infrastructure Europe data shows. With about 160 days until the deadline, injection rates would need to nearly double to meet the goal. Inventories are lower than at the same point in 2022, when Europe scrambled for alternatives to Russian pipeline gas after Moscow's invasion of Ukraine.

Equinor executives warned this month that Europe could face a critical gas shortage if the Hormuz disruption lasts one to three more months.

Winter Power Premiums Flash Supply Alarm

The gas market stress is already visible in power markets. German winter baseload contracts for the fourth quarter of 2026 and first quarter of 2027 are trading above €110 per megawatt-hour, while Italian contracts exceed €120/MWh — both more than 20% above the year-ahead 2027 price, LSEG data shows. That steep backwardation signals acute concern about winter supply.

Hydropower, typically a buffer during peak demand, offers little relief this year. The combined hydrological balance for continental Europe and the Nordics — a measure of available generation capacity held in reservoirs, snow and soil — is at its lowest in a decade, LSEG data shows.

"The buffers that would normally be in place — namely full Alpine reservoirs, ample Nordic hydro, and comfortable LNG availability — are absent this year," said Evan Kyritsis, an analyst at Swiss energy firm Axpo.

Italy, dependent on both gas and hydropower, is the most exposed to future price spikes, while Germany faces pressure from gas costs and weaker imports from hydro-reliant Alpine and Nordic neighbors, Kyritsis said.

BNP Paribas analyst Jason Ying said European power prices could rise further if the strait remains blocked this summer, gas storage stays tight and the current water deficit persists. Gas prices, currently around €46/MWh on TTF, are not yet pricing in a winter premium, he added.

If Rabobank's forecast proves accurate, the 50% surge in European gas prices would ripple through the broader economy, raising costs for households and businesses already grappling with elevated energy bills. The U.K. energy price cap is already set to rise 13% in October, Ofgem announced Wednesday, reflecting the impact of higher gas costs. The next key milestone is Nov. 1, when EU storage targets come due — a date that will test whether Europe has secured enough supply to navigate the winter.

This article is for informational purposes only and does not constitute investment advice.