Citi sees European gas prices rising in 2027 as Middle East risks spur price gains

Citi predicts European gas prices to surge in 2027 due to Middle East risks, with potential price hikes depending on the impact on liquefaction facilities. If Middle East tensions intensify but liquefaction facilities stay intact, Dutch TTF winter 2026-27 prices may surge to around €85 per megawatt-hour. However, should LNG facilities suffer damage and become inoperable, prices could skyrocket to about €154/MWh.

Factoring in the likelihood of both scenarios, Citi estimates a weighted average price of €103/MWh in an escalation situation, compared to the current price of roughly €95/MWh. Prices for winter 2026-27, 2027, and 2028 contracts appear to reflect similar probabilities of escalation, with a 25% chance of liquefaction facilities being targeted.

Yet, Citi questions the market's accurate risk assessment, pointing to improving Iran-Qatar relations despite the unpredictability of conflict developments. Additionally, Citi notes a significant rally in longer-dated European gas contracts, with calendar 2028 TTF prices surging roughly 60% over the past three months, nearing levels seen during the Russia-Ukraine war.

Citi suggests the market may be pricing in potential damage to LNG liquefaction facilities, with some short-covering. Lastly, Citi expects stronger risk-adjusted upside in U.S. Henry Hub gas prices compared to European TTF if extreme cold weather or a polar vortex occurs. Factors like diplomatic efforts involving Qatar, Saudi Arabia, and China, as well as Israeli elections, could heavily influence the outlook.