Gas prices in Europe jumped more than 100 percent after joint US and Israeli attacks on Iran disrupted shipping through the Strait of Hormuz and forced QatarEnergy to shut down production at major liquefied natural gas (LNG) facilities, sharply raising fears of a supply shortage.
Shipping traffic has come to an almost complete halt in the Strait of Hormuz, a key strait that carries about 20 percent of the world’s liquefied natural gas exports, including almost all LNG shipments from Qatar to international markets.
After Iranian drones hit energy infrastructure facilities in Ras Laffan and Mesaieed industrial zones, QatarEnergy suspended LNG production at those locations, citing security reasons.
Suspension of production and traffic disruption
The combination of the suspension of LNG production and disruptions in tanker traffic upset the markets, which were already sensitive to geopolitical risks.
On the Dutch stock exchange Title Transfer Facility (TTF), the most liquid European hub for gas trading, futures for April jumped to 65.50 euros per megawatt-hour.
This is a significant increase compared to the closing price of 31.95 euros per megawatt-hour on February 27, before the attack. On that day, prices rose by about 47 percent compared to the previous session.
Qatar participates with about 20 percent of the world’s total LNG export capacity, so the suspension of work in Ras Laffan and Mesaieed is one of the most significant blows to the gas market since the Russian invasion of Ukraine in 2022.
Gas stocks in warehouses are currently around 30%
QatarEnergy’s declaration of force majeure has further increased uncertainty for customers with long-term contracts, and there is a possibility that some of them will be forced to seek supplies on the spot market.
With the Strait of Hormuz practically closed, competition between Europe and Asia for alternative LNG sources, especially from the USA and Australia, is expected to intensify.
Gas stocks in storage across the European Union are currently around 30 percent, significantly lower than at the same time last year, making the region more vulnerable to further disruptions.
The European Union’s natural gas coordination group has scheduled a meeting for March 4 to assess the impact of rising tensions in the Middle East and consider possible response measures.
