Natural gas prices in Europe could more than double if supplies through the Strait of Hormuz are halted for a month — by 130%, according to Goldman Sachs Group Inc., and European gas prices have already risen by 25% amid the threat of an Iranian crisis to global supplies, UNN reports with reference to Bloomberg.
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Goldman Sachs analysts noted in a March 1 memo that European and Asian benchmark prices barely account for the risk premium associated with Iran. About a fifth of the world's liquefied natural gas, mostly from Qatar, passes through this narrow strait, and a month-long supply disruption could lead to a 130% increase in European prices and the Asian spot LNG market to $25 per million British thermal units (BTU).
"A hypothetical longer disruption of natural gas transit through the Strait of Hormuz, lasting more than two months, would likely push natural gas prices in Europe above €100/MWh ($35/mmBTU), triggering a significant reduction in global gas demand," analysts said.
However, according to Goldman Sachs, the impact on the US natural gas market is likely to be limited. The country is a large net exporter of this ultra-low temperature fuel, and liquefaction plants typically operate at full capacity, leaving them little room to increase supply.
European natural gas prices have already risen sharply after fighting in the Middle East raised fears of serious disruptions to global energy supplies.
Benchmark futures rose by as much as 25% — the largest increase since August 2023 — after tanker traffic through the Strait of Hormuz largely halted over the weekend. The narrow waterway is a key energy shipping route, accounting for about 20% of global liquefied natural gas exports. Oil prices also rose sharply.
The situation poses the risk of the most serious shock to gas markets since Russia's invasion of Ukraine four years ago, which upended global energy trade. Although Asian countries buy most of the LNG supplied from the Middle East, any disruptions will intensify competition for alternative supplies, leading to higher prices worldwide, including in Europe, the publication writes.
Europe, as indicated, is particularly vulnerable. Its gas reserves are extremely low, and the region needs to import large volumes of LNG this summer to replenish them before next winter.
The conflict escalated last weekend after a US and Israeli attack on Iran. Tehran responded with strikes targeting several countries. LNG tankers that were supposed to load cargoes in Qatar and the United Arab Emirates now appear to be delayed or changing their plans. In addition, Israel has closed some gas fields, prompting a major importer, Egypt, to seek more LNG cargoes.
Iran stated that it has no intention of closing the Strait of Hormuz, but vessels began avoiding the strait almost immediately after the conflict began on Saturday. Qatar announced a temporary suspension of all maritime navigation.
Futures for the month-ahead contract in the Netherlands, the European gas benchmark, traded 20% higher at €38.44 per megawatt-hour by 8:04 a.m. in Amsterdam.