(March 9): European natural gas prices jumped as the war in the Middle East continues to rock energy markets and disrupt shipments of seaborne supplies.
Benchmark futures jumped as much as 30% on Monday, extending their biggest weekly advance since the energy crisis. The move follows a surge in oil to above US$100 a barrel as more major Middle East producers curbed production and the Strait of Hormuz remained effectively closed. US natural gas futures also moved up, reaching the highest in a month.
The conflict is now in its 10th day and showing no signs of easing, bringing more uncertainty to energy markets and fanning inflationary pressures. For gas markets in particular, Europe is in a vulnerable position as it’s emerging from winter with storage tanks depleted. That means it will have to buy more LNG cargoes this summer to refill them, vying with buyers in Asia for a limited pool of supplies if Middle Eastern flows can’t reach global markets.
“The market is slowly waking up to the reality of prolonged supply disruptions across the whole energy value chain,” said Florence Schmit, an energy strategist at Rabobank. “We see supply disruptions to last for about three months now.”
Prices are still well below the records reached during the energy crisis, currently near €64 a megawatt-hour, compared to an all-time peak above €300 a megawatt-hour.
See also: G7 to discuss joint release of emergency oil reserves — Bloomberg
Still, the impact of the conflict risks changing global gas market dynamics. A halt of liquefied natural gas production in major exporter Qatar is likely to remove most of the glut that was forecast by some analysts for this year, Morgan Stanley researchers including Devin McDermott said in a note. Any extension in the Qatar LNG outage beyond one month “quickly brings a deficit".
Qatar’s Ras Laffan LNG plant, the world’s biggest, appears to remain largely intact after its unprecedented closure last week. Still, any restart and resumption of deliveries could take weeks or even months, the nation’s energy minister told the Financial Times. QatarEnergy declared force majeure to its affected buyers last week after suspending production of LNG and associated products, impacting European buyers like Italy’s Edison SpA and Poland’s Orlen SA.
Goldman Sachs Group Inc analysts including Samantha Dart raised a forecast for European gas prices for the second quarter to €63 a megawatt-hour from €45 on the expectation of prolonged disruption to Qatar’s exports. The estimate assumes Qatar’s LNG shipments will remain at zero through late March, longer than initially expected, followed by a gradual ramp-up lasting most of April.
See also: Oil surges above US$100 as Iran war chokes off supply
Dutch front-month futures, Europe’s gas benchmark, traded 17% higher at €62.56 a megawatt-hour by 8.31am in Amsterdam.
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