Natural gas and LNG prices in Europe have fallen since the signing of the U.S.-Iran memorandum of understanding last week, but analysts say the drop will only slightly ease the coming winter’s gas crunch. Benchmark storage prices fell about 10% over the past week, yet prices are expected to remain well above pre-crisis levels because Asian demand is set to rise as forecasters expect an unusually hot summer. That stronger competition for cargoes could force Europe to keep paying steep premiums to refill storage ahead of winter, when those reserves cover roughly one-third of the continent’s demand, especially during severe cold snaps.
James O’Brien, head of LNG trading at Ukrainian energy company DTEK, told Bloomberg that the spot market remains structurally tight. He said, “The physical market is still structurally tight,” adding that “the cost of moving gas through Hormuz now seems to have risen permanently.” He argued there is no short-term fix for Europe’s storage problem and said inventories may reach only 70% by winter, below historical norms. The deal with Iran covers only 60 days, leaving open the possibility that pressure could return to energy markets later this year.
Major banks still expect prices to stay elevated. ABN Amro sees third-quarter gas prices around 43 euros per megawatt hour, about 30% above pre-war levels. Goldman Sachs forecasts about 41 euros in the second half of the year, Citigroup expects 37 euros, and Bank of America is much higher at 50 euros per megawatt hour. In Britain, gas prices nearly doubled at the start of the war, driving up electricity bills, and gas still accounts for 27% of power generation there. Prices have eased from about 157 pence per heating unit in March to 98 pence now, but experts say it would be too optimistic to expect a quick return to prewar levels.
Asia’s LNG market is recovering gradually after losing 20% of global supply, helped by China’s gradual return. The region is set to import 21.83 million tons this month, the highest in five months and above 21.55 million tons a year earlier, according to Kpler. India’s LNG imports fell to a three-year low in March after the Hormuz disruption, while Pakistan, heavily dependent on Qatar, is still struggling to find substitutes and is forecast to import only 210,000 tons in June from Oman and Qatar. European leaders welcomed the U.S.-Iran deal, with European Council President Antonio Costa saying he looks forward to the end of the “expensive war” and the full restoration of freedom of navigation in the Strait of Hormuz. European Commission President Ursula von der Leyen said the top priority is full and swift implementation of the agreement and called on all sides to respect Lebanese sovereignty and enforce a real ceasefire.
