Geopolitical risks cause high volatility on gas market

The escalation in the Middle East is again causing high volatility on the gas markets this week. Since the start of the conflict, spot prices have at times risen to as much as 55 EUR EUR/MWh. From a fundamental perspective, the market is actually bearish. An overview.

Significantly higher sentiment premiums possible

The fear of a conflagration in the Middle East region keeps the markets in tension. However, the premiums we have seen on the gas market since the beginning of the conflict are pure sentiment and not fundamentally based. Depending on further developments, significantly higher premiums are also conceivable.

A further escalation of the conflict could lead to restrictions on shipping passages through the Suez Canal or even trigger a blockade at the Strait of Hormuz. Although these scenarios are unlikely at this time, it brings back memories of the impact of the Ever Given accident in the Suez Canal in 2021.

11 percent of LNG supplies from Qatar

Should the conflict affect shipping passages through the Suez Canal, this will lead to an overall shortage of goods in Europe, potentially causing problems with LNG supplies from Qatar (especially in the event of a blockade at the Strait of Hormuz). In addition, Qatar is considered a supporter of the terrorist group Hamas.

Qatar has shipped 145 shipments of LNG to Europe so far this year. Qatar has an 11 percent share of the European LNG market so far in 2023, making it the third largest LNG supplier to Europe, after the U.S. and Russia.

Tamar field closure

The U.S. has a 43 percent market share so far in 2023, with a total of 551 LNG ship deliveries. A total of 171 LNG vessels came from Russia (13% market share).

The temporary closure of Israel’s Tamar gas field is currently reducing Israeli gas exports to Egypt by about 30 percent. However, the impact due to reduced availability of Egyptian LNG in Europe is rather marginal.

Egypt has shipped 21 LNG supplies to Europe so far this year, a 2 percent share of the European LNG market.

Belgium and Italy largest importers of Qatari LNG

Most Qatari LNG shipments so far in 2023 have gone to Belgium and Italy. At the Zeebrugge LNG Terminal, 39 LNG deliveries were made; only Russia made more LNG deliveries there, with 48 shipments. Also 39 deliveries went to LNG terminals in Italy.

The UK imported 19 LNG supplies from Qatar, France imported 15 supplies, Poland 14 supplies, and Spain 13 supplies.

If LNG deliveries from Qatar fail to arrive in Europe in the coming months, significantly higher price premiums on the gas market are conceivable.

Fundamentals bearish

The spot price on the TTF would possibly have fallen to 20 EUR/MWh in these weeks without the escalation of the conflict in the Middle East. Overall, the gas market is well balanced, gas storage is almost full at 98 percent level and LNG supply has recovered significantly compared to four weeks ago.

Gas supply in Europe is averaging 11000 GWh/day this week, above last year’s lows for the first time since March this year.

Pipeline supplies from Norway and Algeria are stable at around 3600 GWh/day and 1100 GWh/day, respectively. Shipments from Russia and Azerbaijan, at 1050 GWh/day and 400 GWh/day, respectively, are reaching new highs for the year this week.

LNG shipments recently totaled 4300 GWh/day (EU+UK), about 1000 GWh/day above the low for the year about four weeks ago.