Spain's Medgaz deal and OPEC+'s output push add supply-side offsets to the bull gas narrative
A 12 bcm/year Medgaz expansion and OPEC+'s planned September output hike offer supply-side offsets that ICE Endex TTF front-month pricing may not yet reflect.
Spain and Algeria struck a deal on Thursday (2026-07-24) to raise natural gas flows through the Medgaz pipeline to 12 billion cubic metres a year and expand LNG deliveries, giving Madrid a supply route that bypasses both the Strait of Hormuz and Bab el-Mandeb entirely. ICE Endex TTF front-month closed at €63.76/MWh at Friday's (2026-07-25) close, elevated sharply from pre-conflict levels, with traders pricing in $100 oil on the dual-strait disruption narrative.3
The straits are doing the heavy lifting on prices. The Strait of Hormuz accounted for about 20% of the world's oil and gas traffic before the conflict began; Bab el-Mandeb carried approximately 7% of global oil output. Both are effectively closed. European gas storage was below 54% full as of 2026-07-22, against 64% at the same point last year, and analysts at Independent Commodity Intelligence Services (ICIS) have warned the conflict is delaying the expected recovery of Qatari LNG capacity.2
The damage to Qatari supply is specific. Iranian strikes in spring 2026 hit Ras Laffan LNG Trains 4 and 6, and Pearl GTL Train 2. QatarEnergy estimates repairs will sideline about 12.8 million tonnes per year of LNG capacity for an unspecified period. Goldman Sachs calculated the Hormuz disruption broadly would reduce near-term global LNG supply by about 19%. Asia absorbs nearly 90% of LNG shipments from Qatar and the UAE; Europe sources 7-11% of its LNG from the region, enough to bite when storage is already running a 10-percentage-point year-on-year deficit and LNG represents roughly 25% of Europe's total gas supply, according to Stifel analyst Chris Wheaton.2,1
Two supply-side developments announced on Thursday (2026-07-24) complicate the bull case without overturning it.3
OPEC+ is expected to raise September output targets by 188,000 barrels a day at its August 2 meeting, pressing ahead with plans to fully unwind 2023 voluntary cuts that totalled 1.65 million b/d. ICE Brent crude front-month stood at $98.70/bbl at Friday's (2026-07-25) close. The group is adding supply into the disruption, not waiting for conditions to ease. Contrarian signals in the market flag storage as the primary Brent driver, running against the $100 consensus.3
The Medgaz expansion is the more direct offset for European gas. Algeria routes gas overland and through the Mediterranean, avoiding both strait chokepoints. Raising Medgaz throughput to 12 bcm/year would inject additional physical volume into the southern European grid independent of Middle East shipping conditions. The announcement did not specify the pipeline's current utilisation rate or a ramp-up timeline.3
The US tariff announcement on Thursday (2026-07-24) adds a further variable. New levies of 10-12.5% on imports from 60 trading partners, including the EU, explicitly exempt oil, gas and fertilizers. That exemption keeps the Atlantic LNG arbitrage open: NYMEX Henry Hub front-month closed at $2.87/MMBtu on Friday (2026-07-25), well below Asian and European spot prices. Supply signals on Henry Hub are bearish, driven by domestic US production; the constraint on Atlantic LNG flows is liquefaction capacity and vessel availability, not feedgas supply.3
The bull case for European gas through winter remains coherent: storage is running 10 percentage points below last year, Qatari output recovery is slow and uncertain, and both chokepoints are still effectively closed. But the Medgaz target of 12 bcm/year (if operationally realised) and OPEC+'s steady output increases both represent physical supply additions that ICE Endex TTF front-month prices may be slow to absorb.3,2
Published Medgaz flow data in the weeks ahead will provide the clearest test. If volumes lift materially toward the 12 bcm/year target, the pipeline bypass story gains credibility and front-month TTF has room to pull back. If infrastructure constraints or Algerian domestic demand absorb the headline commitment, the storage trajectory stays dire and winter upside risk persists. The ramp rate, not the headline agreement, is the number to track.3