European natural gas prices have surged, with the benchmark Dutch TTF briefly surpassing €60 per megawatt-hour, a four-month high, before settling at €59 per megawatt-hour. This 50 percent increase from the previous month is driven by renewed violence in the Middle East, specifically the conflict between the US and Iran, which has led to a tenth consecutive night of US strikes and Iranian retaliation. The ongoing attacks have disrupted energy infrastructure and vital shipping lanes like the Strait of Hormuz and the Bab al-Mandab Strait, impacting global LNG supplies.
The conflict is delaying the expected recovery of Qatari LNG exports, a significant source for Europe, making it difficult for the continent to replenish its gas reserves. After a cold winter, European storage facilities are at approximately 53% full, significantly lower than 64% a year ago and 15 percentage points below the five-year average. Analysts from Independent Commodity Intelligence Services (ICIS) and Montel Energy emphasize that if prices remain around €60 a MWh, Europe could face "costly state intervention to safeguard security of supply" and achieving storage targets would be substantially more expensive, especially with a cold start to winter.
The continuous geopolitical risk in the Middle East is now seen as a structural feature of energy markets, pushing prices up. European countries may need to pay €54 a MWh this autumn for restocking, potentially rising to €60 a MWh in colder conditions. While Europe is not overly reliant on Middle Eastern gas, receiving about 10% of its LNG from Qatar, the global nature of the market means disruptions anywhere impact prices everywhere. The high prices are sparking concerns about the economic impact on European businesses and consumers, with limited options for politicians to mitigate the strain.
