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Is Europe's recovery in gas demand derailed by the Iran crisis or is it just dented? Maguire

Gas-fired electricity production in Europe reached multi-year-highs early in 2026. This raised hopes among LNG exporters that Europe was regaining a taste for this fuel.

Gas consumption has slowed down significantly in March. The average level of gas production across the key consumers is down by about a third compared to the previous month.

At least part of this slowdown is likely due to a sharp rise in regional gas prices in the wake of the U.S. - Iran war that began on February 28, 2008.

The above-average temperatures in Central and Western Europe have also 'cut regional gas consumption, as heating demands have dropped sharply since the beginning of the year.

The low regional gas inventory levels, which need to be replenished before next winter and trigger regular import orders, even if industrial and power gas usage remains soft will further obscure the demand picture.

The global LNG industry is facing major challenges as it invests billions in new export capacities on the assumption that Europe will continue to grow its gas demand.

The future gas consumption in Europe will have a significant impact on several clean-tech industries, including developers of renewable energy and manufacturers of heat pumps and batteries.

Here are some data and trends that can help industries and analysts grapple with this issue. They may be useful guidesposts to the true demand potential of Europe.

Power Trends

Gas consumption for electricity production peaks during the winter, when heating demands are highest. Then, it drops sharply between spring and autumn.

Ember data show that between 2019 and 2025 the gas-fired production averaged 110 Terawatt Hours (TWh), per month, from October to February, but fell to 87 TWh, per month, from April to Septembre.

The roughly 26% drop in consumption at the mid-year mark creates an uneven burn in Europe's electricity system, despite the fact that the fuel is still responsible for 25% of the total output.

The annual drop in gas consumption by utilities could be underway, despite market anxiety over the Middle East crisis.

Any sudden cold snaps in the spring may result in a new burst of gas demand, further reducing regional fuel stocks.

Storage Problems

Europe's gas stockpiles hover around 27% capacity. This is the lowest level for this time of year in 2022.

The optimistic outlook for LNG exports through 2026 had led utilities to draw down their stocks during the winter. However, the recent halt of LNG exports by Qatar has caused a rapid reevaluation of this calculus.

Qatar, the second largest LNG exporter by 2025 in the world, is still offline. This means that Europe's storage operators need to replenish their stockpiles before the winter.

In the past, Europe's total inventories of gas hovered around 2,000 billion cubic foot (bcf), which was enough to meet normal heating requirements through winter.

The current inventory is around 370 BCF, so it will need to expand by about 1,600 BCF over the next 235 or so days.

Gas storage operators will need to inject approximately 6.9 bcf/day (bcfd), which is equivalent to two large LNG tanks per day, in order for them reach this total.

According to Kpler's estimates, in Europe, in 2025 three large LNG tanks will discharge their cargo on average per day. This means that storage companies can secure two tankers per a day.

According to LSEG, the majority of Europe's natural gas is delivered via pipeline. Around 17 bcfd are distributed throughout Europe by countries like Norway, North Africa, and Azerbaijan.

As they refill their tanks, tank farms will choose cheaper pipelined LNG supplies but will also tap the LNG market if prices is attractive.

PIVOT INDUSTRIAL

Gas demand is also influenced by the health of Europe's industry.

Fertilizer producers, chemical plants and steel mills, as well as a large number of production lines, have historically been "steady" gas consumers.

The collective gas consumption of businesses has fallen sharply in the years since Russia invaded Ukraine, 2022. It has also remained soft amid a subdued economy across Europe.

Volkswagen, Europe's largest automaker, reported layoffs this year and a decline in profits.

European policymakers are currently drafting new industrial heating rules to help some sectors replace volatile natural gas with cheaper electric.

To reduce the need to import gas, lawmakers are taking steps to increase supplies of biomethane. This is mainly generated from agricultural facilities and municipal waste disposal sites.

These measures could reduce the total amount of industrial gas used, but they would also create an extra demand for electricity, which would require the power sector to provide at a low cost.

Gas-dependent businesses have no choice but to burn gas as long as they can and reduce output when they cannot.

It is likely that Europe's gas consumption trends will remain choppy in the near future, even as power and industrial users reduce their dependence on gas.

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(source: Reuters)