LONDON: European natural gas hit a fresh three-year high as traders race to fill fuel storage facilities ahead of winter, with no resolution in sight for the crisis in the Middle East and rising concerns about the supply outlook.
Benchmark futures jumped as much as 5.2% to the highest since January 2023.
Uncertainty remains about shipping through the Strait of Hormuz, through which roughly a fifth of the world’s liquefied gas flowed during peace time.
On top of that, some pipeline supplies to Europe are also curbed, with additional maintenance in Norway and reduced Algerian flows to Italy.
Qatar sent its first liquefied natural gas (LNG) cargo since July via Strait of Hormuz, broadcasting its location during the journey, but there’s still no clarity on further exports and safety of shipping in the region.
On Monday, Iran said a deal with Oman to manage the waterway was imminent, a move traders are still weighing because it could tighten Tehran’s control over Strait of Hormuz and raise questions about how the United States would respond.
Europe needs elevated gas prices in order to attract more seaborne cargoes to its shores, but with less than a month left until the heating season, the region’s inventories are still lagging behind.
Storage is now just 67% full, compared with a seasonal norm of 83%.
“As the European gas market heads into winter with unusually low inventories, its flexibility to absorb further supply or demand shocks is limited,” Timera Energy analysts said. “Europe is pricing up to outcompete Asia for marginal LNG.”
Traders are also watching supply outages in Europe, with Algeria’s pipeline flows via the Mazara del Vallo entry point in Italy – already curbed since the start of the month – showing an expected drop to zero from yesterday, based on grid data on shipment orders.
Dutch front-month futures, Europe’s gas benchmark, traded up 4.6% at 76.65 a megawatt-hour by 6.44pm in Amsterdam.
Rising gas prices are also bolstering electricity costs, with gas-fired plants often setting power prices. That is particularly relevant for Germany, where fading solar output during the winter months will increase reliance on the country’s fossil-fuel fleet.
German power futures for 2027 climbed to the highest since October 2023, according to European Energy Exchange data. — Bloomberg
