Citi analysts warn that European natural gas prices could face significant volatility in 2027 due to escalating risks in the Middle East. The bank estimates that benchmark winter 2026-27 prices could surge to €85 per megawatt-hour if conflict intensifies but liquefied natural gas (LNG) infrastructure remains intact. However, prices could skyrocket to around €154/MWh if LNG facilities are damaged and taken offline.
Considering the likelihood of both scenarios, Citi projects a weighted price of about €103/MWh in an escalation scenario, compared to the current price of around €95/MWh. Without escalation, prices are expected to trade between €60-€70/MWh. The bank notes that winter 2026-27, 2027, and 2028 contracts reflect similar probabilities of escalation, alongside a roughly 25% chance of liquefaction facilities being struck.
Citi questions whether the market is accurately assessing the risk of infrastructure damage, pointing to improving relations between Iran and Qatar. However, the bank cautions that conflict developments remain unpredictable. Additionally, the bank highlights a sharp rally in longer-dated European gas contracts, with calendar 2028 TTF prices rising around 60% over the past three months, bringing them close to levels seen in 2022 following the Russia-Ukraine war.
The bank suggests that markets may be pricing in the possibility of LNG liquefaction facilities being damaged and remaining offline for months or even years, alongside some short-covering. Meanwhile, Citi sees greater risk-adjusted upside in U.S. benchmark Henry Hub gas prices than in European TTF if severe cold weather or a polar vortex materializes. Winter Henry Hub prices have fallen sharply, with speculative positioning among managed-money investors at some of the shortest levels seen since early 2020.
Diplomatic efforts involving Qatar, Saudi Arabia, and China, as well as developments surrounding Israeli elections, remain important factors that could influence the outlook, Citi said.