Natural gas, LNG prices soar on Middle East supply fears
A prolonged surge in natural gas prices triggered by the ongoing war in the Middle East risks denting European growth and hitting some Asian economies hard, analysts have warned.
Global gas prices have soared this week amid fears of a lengthy disruption to energy flows through the Strait of Hormuz — a key shipping route running between Oman and Iran that handles about one-fifth of global LNG trade — as the Iran conflict escalates.
Dutch Title Transfer Facility (TTF) futures, Europe’s benchmark gas contract, rose 35% on Tuesday to more than 60 euros ($69.64) per megawatt-hour. On the week, prices are around 76% higher.
The Northeast Asia LNG benchmark, the Japan-Korea-Marker (JKM), which captures deliveries to Japan, Korea, China and Taiwan, reached a one-year high, and was last seen around 43 euros per megawatt-hour. U.K. natural gas was also sharply higher.
Qatar, one of the world’s largest LNG producers, halted production on Monday following Iranian drone strikes at Ras Laffan Industrial City and Mesaieed Industrial City. Goldman Sachs estimated the pause will reduce near-term global LNG supply by about 19%.
A senior Iranian Revolutionary Guard official later said the country had closed the Strait of Hormuz to all ships, and warned that any vessel attempting to pass through the channel would be attacked. The U.S., however, said the route remained open, according to a Fox News report.
Supply squeeze
Europe and much of Asia are more heavily exposed to potential gas price shocks than the U.S., which benefits from both domestic shale and LNG production.
Around 25% of Europe’s total gas supply is LNG, according to Chris Wheaton, oil and gas analyst at Stifel. With roughly 20% of global LNG production sitting behind the Strait, a prolonged disruption could trigger a supply squeeze comparable to the 2022 shock following Russia’s invasion of Ukraine, he said in a note.
“We are much more concerned about European gas prices than we are about oil prices,” Wheaton said.
Shares of Norwegian energy giant Equinor, one of Europe’s largest natural gas suppliers, hit a 52-week high on Tuesday, adding more than 2%, after closing the previous session up more than 8%.
Equinor.
Goldman Sachs, in a note published Monday, warned that a month-long halt to flows through Hormuz risks driving TTF and JKM prices toward 74 euros per megawatt-hour. This was the level that “triggered large natural gas demand responses” during the 2022 European energy crisis.
European gas prices ultimately peaked at 345 euros per megawatt-hour in August 2022 as Russia weaponized its natural gas exports in response to EU sanctions, cutting supply, which pushed up domestic energy bills and sparked a cost-of-living crisis across the continent.
In a separate note later Monday, Goldman raised its April TTF forecast to 55 euros per megawatt-hour from 36 euros per megawatt-hour, with its average second-quarter forecast now at 45 euros/MWh.
‘Negative implications’
Patrick…
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