ROI-Is Europe's gas demand recovery derailed or just dented by Iran crisis?: Maguire

By Gavin Maguire

LITTLETON, Colorado, March 12 (Reuters) - Most of Europe's largest natural gas consumers cranked gas-fired power production to multi-year highs in early 2026, raising hopes among liquefied natural gas (LNG) exporters that the region was regaining its taste for the fuel.

However, a major slowdown in gas consumption is evident so far in March, with average gas generation levels across key consumers dropping by around a third from the month before.

A sharp surge in regional gas costs in the wake of the outbreak of the U.S.-Iran war on February 28 likely accounts for at least some of that slowdown.

Above-normal temperatures across much of Central and Western Europe have also cut regional gas use, as heating demand has dropped sharply compared with the start of the year.

Further obscuring the demand picture is the current low level of regional gas inventories, which must be replenished ahead of next winter and will trigger regular import orders even if power and industrial gas use stays soft.

This confusing setup is likely to cause major headaches for the global LNG sector, which is investing billions of dollars in new export capacity on the assumption that Europe's gas needs will keep expanding.

Several clean-tech sectors will also be impacted by any forthcoming swings in European gas use, as renewable power developers and producers of heat pumps and battery systems all stand to gain from lower gas use.

To help analysts and industries grappling with this issue, here are some key data points and trends on Europe's gas use by utilities and industry that may provide useful guideposts on the region's true demand potential.

POWER TRENDS

A key aspect of Europe's power markets is that gas consumption for electricity generation peaks in winter, when heating demand is highest, and then sags sharply from spring through autumn.

Between 2019 and 2025, gas-fired output averaged 110 terawatt hours (TWh) per month from October to March, falling to about 87 TWh a month from April to September, Ember data shows.

That roughly 26% fall in mid-year consumption produces an uneven burn rate in Europe's power system, even though the fuel still provides a vital 25% of total electricity output over the year.

With weather forecasts for western Europe calling for above-normal temperatures through April, the annual dip in gas use by utilities is likely already underway and could crimp overall gas consumption irrespective of market jitters about the Middle East crisis.

That said, any sudden cold snaps over the spring could result in fresh bursts of gas demand for heating, which could further tighten regional fuel inventories.

STORAGE WOES

Europe's current gas stockpiles are hovering at around 27% of capacity, the lowest for this time of year since 2022.

An upbeat outlook for global LNG export volumes through 2026 had lulled utilities into drawing down stocks over the past winter, although the recent stoppage of LNG exports from Qatar has prompted a speedy reassessment of that calculus.

Europe's storage operators must now steadily replenish those stockpiles ahead of the coming winter while Qatar - the world's second-largest LNG exporter in 2025 - remains offline.

Historically, Europe's total gas inventories hovered just below 2,000 billion cubic feet (bcf) by the start of November, which was sufficient to meet normal heating needs through winter.

Inventories are currently around 370 bcf, and so must expand by around 1,600 bcf over the next 235 days or so.

To hit that total, gas storage operators must inject roughly 6.9 bcf per day (bcfd) through November, which is the equivalent of two large LNG tankers daily.

On average, three large LNG tankers discharged their cargo per day in Europe in 2025, according to Kpler, so it is possible for storage firms to secure the equivalent of two tankers per day for themselves.

However, a majority of Europe's gas supplies are delivered by pipeline, with around 17 bcfd distributed across Europe from the likes of Norway, North Africa and Azerbaijan, according to LSEG.

Tank farms will prefer cheaper pipelined supplies as they refill storage, but will tap the LNG import market if prices are attractive.

INDUSTRIAL PIVOT

The health of Europe's industrial base is another key factor shaping gas demand.

Fertilizer manufacturers, chemical plants, steel mills and a swath of production lines have all historically been steady gas consumers.

But collective gas use by businesses has dropped sharply since Russia's invasion of Ukraine in 2022, and has stayed soft amid subdued economic activity across Europe.

Europe's once-esteemed car sector embodies the broader industrial malaise, with Volkswagen VOWG.DE, its largest carmaker, reporting layoffs and a drop in profits this year.

To help lower operating costs and provide greater regulatory certainty for industry, European policymakers are drafting new industrial heat rules aimed at helping some sectors replace volatile gas with cheaper electricity.

Lawmakers are also taking steps to ramp up supplies of biomethane - generated mainly from agriculture facilities and municipal waste dumps - to reduce the need for imported gas.

If successful, these measures may reduce total industrial gas use, although this would create extra electricity demand, which the power sector would be on the hook to deliver at low cost.

Any new measures are unlikely to materially affect gas consumption for several years, so for now gas-dependent businesses will have little choice but to continue burning gas when they can afford it and cut output when they can't.

This in turn will likely mean that Europe's total gas use trends stay choppy for the foreseeable future, even if power and industrial users gradually reduce their underlying reliance on gas.

(The opinions expressed here are those of the author, a columnist for Reuters.)

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