Gas prices in Europe rose by about 30 percent on Monday against the backdrop of the war in the Middle East, which has shaken energy markets and raised fears of prolonged supply disruptions.
The price of the Dutch TTF natural gas contract, which is a benchmark in Europe, rose to 69.50 euros, before falling back slightly.
Despite the increase, prices are still lower than the level they reached in 2022 when the Ukraine war broke out.
This increase follows a rise in oil prices to above $110 a barrel, as more major Middle Eastern producers cut output and the Strait of Hormuz remains effectively closed. Natural gas futures in the United States also rose, reaching their highest level in a month.
Day 10 of the conflict: No signs of abating
The conflict is now entering its tenth day with no signs of abating, increasing uncertainty in energy markets and adding to inflationary pressures.
Specifically regarding gas markets, Europe is in a precarious position, emerging from winter with empty storage tanks. This means it will have to purchase more LNG shipments this summer to replenish its reserves, competing with Asian buyers for limited supplies if Middle Eastern flows fail to reach global markets.
Florence Schmidt, an energy strategist at Rabobank, told Bloomberg News that the market is slowly beginning to grasp the reality of prolonged supply disruptions across the entire energy value chain. She added, We see these supply disruptions as potentially lasting for about three months.
Prices are still far below the record levels seen during the energy crisis, currently at around 64 euros per megawatt-hour, compared to a historic peak of over 300 euros per megawatt-hour.
However, the impact of the conflict could alter the dynamics of the global gas market. A halt in liquefied natural gas (LNG) production in Qatar, one of the world's largest exporters, could wipe out most of the supply surplus some analysts had predicted for this year, according to a note from Morgan Stanley researchers, including Devin McDermott. They indicated that any extension of the Qatari LNG production disruption beyond a month would quickly lead to a market deficit.
Qatar’s Ras Laffan liquefied natural gas project, the world’s largest, appears to be largely intact after its unprecedented shutdown last week.
However, resuming operations and restoring supplies could take weeks or even months, Qatar’s energy minister told the Financial Times.
Qatar Energy had declared force majeure to its affected customers last week after suspending production of liquefied natural gas and related products, impacting European buyers such as Italy’s Edison and Poland’s Orlen.
For their part, analysts at Goldman Sachs raised their forecast for European gas prices in the second quarter to €63 per megawatt-hour, up from €45 previously, based on the expectation of continued disruptions to Qatari exports. This estimate assumes that Qatari LNG shipments will remain at zero until late March, for a longer period than initially anticipated, followed by a gradual recovery in supply that will last through most of April.
Dutch gas futures for the nearest delivery month — the European benchmark for gas prices — rose 17% to €62.56 per megawatt-hour by 8:31 a.m. in Amsterdam.
