European natural gas prices have surged since the war in Iran trapped much of Qatar's LNG supply behind the Strait of Hormuz. EU storage sits well below its five-year average heading into winter. The price surge is fueling inflation, and separately, the European Central Bank has raised rates twice since June.
European natural gas prices have soared since the war in Iran trapped a fifth of the world's liquefied natural gas supply behind the Strait of Hormuz, straining budgets for households and industry across the continent.
Storage falls well below the five-year average
As of September 28, EU gas storage sites were 71% full, according to Gas Infrastructure Europe, compared with 86% for this time of year over the past five years. Germany, the bloc's largest economy, has even lower reserves than average, with its storage sites only about 57% full, a level that has prompted concerns about supply security should winter turn colder than in recent years.
Qatar extends force majeure into winter
This week, QatarEnergy extended the force majeure on LNG deliveries through November. For Italian buyer Edison, the force majeure period runs through early December, and as many as 35 cargoes under its long-term deal with Qatar haven't reached Italy so far this year. VNG, one of Germany's biggest gas importers, said the country doesn't face a gas supply shortage despite the record-low storage levels. According to Reuters, VNG chief executive Ulf Heitmueller said: "Compared to 2022, the system is much more robust overall".
Cargoes shift toward Europe, but at a cost
Diversification has helped Europe secure supply, but the Hormuz crisis has made that supply far more expensive than before the Iran war. One silver lining is that the price premium to ship U.S. cargoes to East Asia has crumbled in recent weeks, effectively shutting the Gulf Coast-Asia arbitrage and shifting cargoes toward Europe instead. As a result, Europe is now importing more prompt LNG supply, though still at a high cost.
Inflation pressure builds on policymakers
The surge in natural gas, gasoline, and diesel prices in recent months is clearly fueling inflation, and the European Central Bank has raised key interest rates twice since June, with potential for further increases. ECB economists have also warned that the surge in wholesale gas prices is set to pass through to retail and electricity inflation faster than in the past. European Energy Commissioner Dan Jørgensen has urged EU governments to weigh measures that sustain gas injections or cut gas and electricity demand, according to a letter to EU governments seen by Euronews.
Even if Europe clears the winter without a major supply scare, the price surge is set to hit energy bills and industry costs again.
Source: Oilprice.com
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