European gas prices surged to a four-month high on Monday, driven by fears that the escalating US-Iran conflict could lead to supply shortages this winter. The Dutch natural gas benchmark briefly rose above €60 per megawatt hour (MWh), approaching levels seen at the start of the US-Iran war, after the US expanded its aerial offensive and Iran retaliated with strikes on Bahrain and Kuwait.
Supply pressures mount
Analysts at Independent Commodity Intelligence Services (ICIS) warned that Europe's gas supplies are under increasing pressure this winter. The conflict has delayed the expected recovery of Qatari liquefied natural gas (LNG) exports during the critical summer storage season. According to ICIS, just 26 LNG cargoes have crossed east out of the Gulf since the conflict began on 28 February, compared with the usual 90 to 100 each month.
“A cold winter start would substantially increase the cost of meeting the EU’s 80% storage target,” said Andreas Schroeder, head of energy analytics at ICIS. “While security of supply remains achievable, the cost of achieving it rises sharply.”
Storage levels fall
European gas storage is now less than 54% full, down from 64% at the same point last year. ICIS calculated that European countries may need to pay about €54 per MWh this autumn to restock supplies, and up to €60 per MWh if a colder winter materialises. The market intelligence firm added that sustained prices around €60 per MWh could require “potentially costly state intervention to safeguard security of supply,” though its modelling suggests storage targets could still be met by late November.
The disruption to Qatari LNG exports has already trimmed global LNG supply forecasts. ICIS cut its 2023 global LNG supply estimate from 441 million tonnes to 431 million tonnes.
Oil markets also affected
The fresh exchange of fire also impacted oil markets, with Brent crude briefly breaching $90 a barrel on Sunday, its highest level in a month. Prices eased after Iran indicated that diplomatic exchanges with the US via mediators were continuing despite the strikes. The gas price later eased to about €57 per MWh on Monday.
“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, 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.”
Strait of Hormuz threat
The latest escalation 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. Diplomats claim that talks remain ongoing, but the risk of supply disruptions continues to weigh on markets.
