Sep 28, 2026

Goldman Sachs: European Natural Gas Prices to Stay Elevated as Winter Nears

European natural gas prices are likely to remain elevated as the winter heating season nears, according to Goldman Sachs Research, with continued interruptions to Middle Eastern liquefied natural gas flows and thin storage in Northwest Europe cited as the main factors.

Goldman Sachs Research noted that European LNG prices had climbed roughly 70% since July, reaching EUR73 per megawatt hour as of September 21, while trading has been volatile amid shifting news about the Middle East conflict, including a recent drop of more than 10%.

The firm’s commodities analysts expect prices to average EUR70 per megawatt hour in the fourth quarter of 2026, a level well above the roughly EUR30 to EUR60 per megawatt hour range seen before this summer.

Persian Gulf LNG exports are estimated at only 15% to 25% of their pre-war levels, following the outbreak of war between Iran and the United States and Israel in February 2026. Without an improvement in shipments through the Strait of Hormuz, European gas prices would need to rise to outcompete LNG buyers elsewhere, according to Samantha Dart, co-head of Global Commodities Research at Goldman Sachs.

Dart indicated that if other buyers step back, more supply would be available for Europe. She also said the sharp summer increase in European gas prices has already begun to curb demand elsewhere, with LNG purchases declining in August in Asia and even in South America. She described the process as working but noted that it makes natural gas very expensive.

Winter balance and price scenarios

Dart said the market’s balance depends on assumptions about Middle East volumes. If Persian Gulf LNG exports improve gradually over the winter and normalize by early next year, the recent rally would be sufficient if sustained through the end of the year. That expectation prompted Goldman Sachs to raise its fourth-quarter forecast for European LNG prices to EUR70 per megawatt hour from a previous projection of EUR53 per megawatt hour, because demand destruction from the rally needs to continue for several months.

If winter exports from the Persian Gulf remain very low, however, the rally would not be enough, and prices would need to exceed EUR100 per megawatt hour at peak winter to destroy more demand outside Europe, according to the firm’s estimate.

Should a new agreement between the United States and Iran lead to higher flows through the Strait, prices could fall fairly quickly, with peak winter prices potentially around EUR50 per megawatt hour, significantly below current levels, and possibly moving lower in early 2027. Goldman Sachs characterized the downside as significant and potentially fast.

Heating demand and storage

Heating season in Europe begins in November. Natural gas is mainly used for heating in winter, and temperature swings can affect demand by about 12% of storage capacity, a meaningful impact on inventories, according to the research.

Gas storage in Northwest Europe has been filling more slowly than expected ahead of winter. Assuming ten-year average winter temperatures, Goldman Sachs expects inventories to be 19% full by the end of March 2027.

Weather poses risks in both directions. The firm estimates that a winter one standard deviation colder than average could raise its average winter price forecast by about 75%, while a winter one standard deviation warmer than average could reduce its winter price assumption by about 30%.

Oil versus gas normalization

Crude oil flows from the Persian Gulf have normalized faster than LNG flows. Many tankers are shuttling oil across the Strait, some with their signals off, and conduct ship-to-ship transfers on the other side so that another vessel can carry the oil away. This adaptation has brought Persian Gulf oil exports to about two-thirds of pre-war levels.

LNG has not followed the same path. One possible explanation is that LNG burns at higher temperatures than oil, making it more dangerous for crews in the event of an attack. Ship-to-ship transfers are also technically more complicated for LNG because the fuel must be kept at very cold temperatures, around minus 160 degrees Celsius, to remain liquid. Calm waters and a precisely measured process are required, making transfers less easy.

Because LNG tankers are highly specialized, fleets usually lack spare capacity, and operators cannot afford to have vessels damaged by attacks. Dart said these factors together create a more cautious and much slower adaptation process for LNG than for crude oil.

Volumes can still increase. After a June memorandum of understanding between the United States and Iran, LNG flows out of the Strait rose from around 10% of normal to 39% of normal within four weeks, according to the research.

Hedging and investor positioning

Dart said she has been speaking with European industrial clients and investors throughout the conflict. For industrial gas users, prices were more moderate at the start of the conflict, which made hedging easier. Now, with winter prices already high, those levels are not an attractive hedge, and board approval for hedging operations at such levels is difficult. She said hedging has somewhat paused.

Investor behavior has shown a similar shift. Although investors agree the risk for European natural gas is skewed to the upside, they are not necessarily eager to add long positions because they worry a headline could reverse the trend. Until recently, appetite was limited, and funds that did enter positions used options to reduce risk, with call spreads a common instrument for gaining exposure.

Longer-term outlook

Beyond the current crisis, longer-term global LNG balances appear increasingly oversupplied. Significant new LNG supply is being built in the United States and Qatar, which Goldman Sachs said means prices at the back end of the curve can move much lower. The firm forecasts European natural gas prices to average EUR19 per megawatt hour in 2030-2035.

That view depends on the Strait remaining open. Investors seeking exposure to this bearish longer-term outlook are using options such as puts to express the view while protecting against near-term risk of price increases, according to the research.