European gas prices surge up to 45% following Qatar's halt in LNG output

European Gas Prices Surge Amid Rising Tensions

Gas prices in Europe, tracked at the Dutch TTF hub, jumped up to 45%, reaching approximately €46 per megawatt-hour during early afternoon trading. The UK's NBP benchmark also experienced a steep climb, mirroring the movements seen across continental markets.

Extreme volatility in the market has led to rapid and unpredictable price changes.

This sudden spike comes in the wake of military actions by the US and Israel targeting Iran, escalating instability in a region vital to global energy supplies.

On Monday afternoon, QatarEnergy revealed it had suspended liquefied natural gas production tied to the massive North Field reservoir after an attack on its facilities. The company did not specify the full extent of operational disruptions.

Global Energy Fears Intensify Over Strait of Hormuz

The Middle East is a major source of the world's energy, and even before Qatar's announcement, concerns about disruptions to oil and gas shipments by sea were already affecting markets.

The Strait of Hormuz, a narrow waterway largely under Iranian control, is a crucial route for oil and LNG exports, including those from Qatar.

Following recent strikes, Iran has taken steps to restrict movement through the strait, raising alarms about potential supply shortages.

Maurizio Carulli, a global energy analyst at Quilter Cheviot, commented, "Throughout modern history, the Strait of Hormuz has never been fully closed, though temporary slowdowns have occurred."

He noted that roughly one-fifth of the world's oil supply and 38% of seaborne crude oil trade pass through this strategic passage.

Carulli expects oil shipping companies to avoid the strait until military tensions ease, citing risks such as vessel damage, seizure, and the lack of insurance coverage.

He added, "Satellite data indicates oil tanker movements nearly stopped over the weekend, as shipping firms took precautionary measures."

Prolonged disruptions could impact LNG deliveries from Qatar, which accounts for about 12% to 14% of Europe's LNG imports.

Europe Faces Heightened Competition for LNG

Although Europe is not heavily dependent on Qatari gas, experts warn that indirect effects could be substantial.

If Asian markets face supply interruptions, buyers may seek alternative sources, intensifying global competition for LNG.

This scenario would likely drive prices higher worldwide, including in Europe.

Qatar, ranking third among LNG exporters after the US and Australia, has become increasingly vital to Europe since the continent reduced its reliance on Russian pipeline gas following Russia's invasion of Ukraine in 2022.

Low Gas Storage Levels Add to Europe's Risks

Europe's relatively depleted gas reserves are contributing to market unease.

As winter ends, EU gas storage is below 30% capacity, compared to about 40% at the same time last year.

Germany and France, the two largest economies in the bloc, are particularly exposed.

According to Gas Infrastructure Europe, Germany's storage facilities were at 20.5% capacity as of Saturday, while France's were at 21%.

Reduced reserves make countries more susceptible to supply interruptions and price swings, especially if global LNG markets become even tighter.