European gas prices surge amid fears US-Iran war will cause winter shortages
European gas prices have hit a four-month high as the escalation of the conflict in the Middle East raises fears of supply shortages this winter.
Intelligence analysis by Llama
The Dutch natural gas benchmark briefly rose above €60 a megawatt hour (MWh) on Monday, near the peaks seen at the start of the US-Iran conflict, after the US expanded its aerial offensive and Iran retaliated with strikes on Bahrain and Kuwait.
Imagine you have a big tank to store gas for winter. But the tank is not full, and there's a war in a faraway place that might make it harder to get more gas. This could make the gas you do have more expensive, and that's a problem for people who need it to keep warm.
Analysis
A Cold Winter Start Would Be Costly
The escalation of the conflict in the Middle East has caused a surge in European gas prices, with the Dutch natural gas benchmark briefly rising above €60 a megawatt hour (MWh) on Monday. This is near the peaks seen at the start of the US-Iran conflict, after the US expanded its aerial offensive and Iran retaliated with strikes on Bahrain and Kuwait. Analysts at Independent Commodity Intelligence Services (ICIS) said Europe's gas supplies were facing pressure this winter, with the conflict delaying the expected recovery of Qatari liquefied natural gas (LNG) exports in the critical summer storage season.
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A cold winter start would substantially increase the cost of meeting the EU's 80% storage target, said Andreas Schroeder, the head of energy analytics at ICIS. While security of supply remains achievable, the cost of achieving it rises sharply. The market intelligence firm added that if the price of gas stayed at about €60 a MWh it could mean 'potentially costly state intervention to safeguard security of supply', although its modelling suggested European gas storage could still reach targets by late November.
European gas storage is now less than 54% full, compared with 64% at the same point last year. ICIS calculated that just 26 LNG cargoes had managed to cross east out of the Gulf since the conflict began on 28 February, compared with the usual 90 to 100 each month. European countries may have to pay about €54 a MWh this autumn to restock supplies, and up to €60 a MWh if a colder start to winter materialises.
The disruption to Qatari LNG exports has already affected gas supplies, with ICIS cutting its forecast for global LNG supply this year from 441m tonnes to 431m. The latest escalation, which comes as diplomats claim that talks remain ongoing, again threatens shipping transiting the strait of Hormuz, through which about 20% of the world's oil and gas passed before the Iran conflict broke out.
There has also been a knock-on effect on oil markets from the fresh exchange of fire, with Brent crude briefly breaching the $90 a barrel mark on Sunday – its highest level in a month – before easing after Iran said diplomatic exchanges with the US via mediators were continuing despite the strikes. The price of gas eased later on Monday to about €57 a MWh.
'Gas prices rising to near the peaks of the start of the US-Iran war is a reminder that whatever we do in the UK, it has no significant impact on the price we pay for gas,' said Jess Ralston, the head of energy at the Energy and Climate Intelligence Unit. 'The reality is that we are tied to international markets and the volatility that has come twice in the past few years from war thousands of miles away.'
Key points
- European gas prices have hit a four-month high due to the escalation of the conflict in the Middle East.
- The conflict is causing concerns about supply shortages this winter, which could lead to higher energy costs for European countries.
- Analysts at ICIS said Europe's gas supplies were facing pressure this winter, with the conflict delaying the expected recovery of Qatari LNG exports.
- European gas storage is now less than 54% full, compared with 64% at the same point last year.
If the conflict in the Middle East is resolved soon, gas prices might not rise as high as they did this time, and European countries might be able to restock their gas supplies at a lower cost.
If the conflict in the Middle East continues and gas supplies are disrupted, European countries might have to pay even more for gas, and some people might struggle to afford it.
