Europe Gas Resumes Gains as War Disruptions Cloud Supply Outlook
(Bloomberg) -- European natural gas prices resumed this week’s rally as the escalating conflict in the Middle East amplified uncertainty about disruptions to energy flows.
Benchmark futures are up around 60% since the start of this week as the war enters its sixth day with no immediate prospect of a resolution in sight. While the US has floated plans to insure and escort tankers through the Strait of Hormuz, the proposal has lacked details so far.
Global energy markets have been rocked by the conflict, with trade disruptions raising the specter of a global energy crisis and sparking inflationary fears.
Europe’s gas market is particularly vulnerable after prolonged cold stretches this winter depleted already-low fuel reserves, requiring it to buy more LNG this summer to refill them. It risks facing stiff competition for cargoes if Middle Eastern supplies aren’t able to reach global markets.
“The economic impact depends massively on the duration of the price shock,” ABN Amro Bank NV economists, including Moutaz Altaghlibi, said in a note. “Europe is better prepared than in 2022 due to LNG diversification and renewables, but prolonged disruption could still escalate pressure.”
Earlier this week, Qatar shut the world’s biggest LNG export plant, Ras Laffan, following an Iranian drone assault. Tanker traffic via the Strait of Hormuz has all but ground to a halt, with the route normally accounting for about a fifth of the world’s LNG supplies.
While Asian countries buy most of the LNG shipped from the Middle East, any prolonged disruption to flows would narrow the pool of available supplies — keeping prices elevated worldwide. Buyers are already scrambling for alternatives: Taiwan says it has secured LNG supplies for April from regions outside the Middle East, while Thailand is seeking extra shipments.
“There is no solution is sight for a reopening of the Strait, so the fear of too little LNG supplies are rising by the day,” said Arne Lohmann Rasmussen, chief analyst at Global Risk Management.
Dutch front-month futures, Europe’s gas benchmark, rose to € a megawatt-hour by 1:19 p.m. in Amsterdam.
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