Gas prices jump as Iran escalation puts Europe’s winter supplies at risk

Europe’s gas market has reached a new yearly high, with prices climbing above 75 euros per megawatt-hour as winter approaches and storage remains unusually low.

The Dutch TTF benchmark reached more than 75 euros on Wednesday, exceeding the previous peak of 74 euros recorded on March 19. Shehar Aziz of the London Stock Exchange Group said the main driver was the escalation in Iran.

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It cannot be a cold winter.

The conflict has disrupted LNG shipping from Qatar through the Strait of Hormuz. European gas storage facilities are about 63% full, a level described as unusually low for this point in the year. Aziz warned that Europe could run out of gas as early as February if the winter is cold.

“I don’t think the market expects the Strait of Hormuz to reopen during the year. We do not expect normal LNG flows through Hormuz before March at the earliest, and that is apart from damaged infrastructure, which will take time to repair,” Aziz said.

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The escalation in Iran is the main reason.

The disruption leaves European buyers competing with Asian countries for cargoes from other suppliers, including the United States. Pakistan and Bangladesh have been active in spot markets because of heat and air-conditioning demand, while Japan has increased its gas inventories in recent days, apparently preparing for winter.

A developing storm, Edouard, could also force LNG infrastructure in the Gulf of Mexico to close for several days. Aziz said the combination of disrupted Qatari shipments, Asian demand, low European inventories and possible US weather problems was affecting gas prices. Higher gas prices are also feeding into electricity prices.

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I don’t think the market expects the Strait of Hormuz to reopen during the year. We do not expect normal LNG flows through Hormuz before March at the earliest, and that is apart from damaged infrastructure, which will take time to repair.