Europe Gas Futures Surge on Risk of Widening War in Middle East

(Bloomberg) -- European natural gas futures jumped amid an escalation of the war in Gaza that risks expanding into a wider conflict.

Benchmark contracts traded in the Netherlands rose as much as 6% early Wednesday after US strikes on Iraqi targets and fresh attacks by Houthi militants on shipping in the Red Sea added to concerns that the Middle East is getting less stable. Crude oil also gained. 

While ship diversions haven’t had a big impact on supplies yet, the market remains on high alert given potential threats to major transit routes for energy exports. Some liquefied natural gas cargoes have been changing course for longer voyages lasting more than a month as they avoid the Red Sea, according to ship-tracking data on Bloomberg.

Still, Europe gas prices have been trading in a relatively narrow range in recent days and are on course to lose more than 50% for the year. High fuel inventories and relatively muted demand have raised confidence that the continent should pass this heating season comfortably. 

The market is holding its footing “despite heading into 2024 with several bullish risks, such as geopolitical tensions — including the Red Sea transit risk,” industry consultant Timera Energy said in a note. 

Weather in most of Europe is expected to remain mild into early January, meaning lower demand for gas in heating. Some countries have already used that to replenish fuel inventories during Christmas, with Germany, Austria, Belgium and Denmark among those who saw a marginal net increase in gas stockpiles on Monday, according to Gas Infrastructure Europe. 

Dutch front-month gas traded 5.6% higher at €36.08 a megawatt-hour as of 8:48 a.m. in Amsterdam. The UK equivalent contract added 5.7%. 

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