itstargetnews
Analysts warn that a prolonged surge in gas prices triggered by an ongoing war in the Middle East could weaken European growth and hit some Asian economies hard.
Global natural gas prices surged this week amid concerns about long-term disruptions to energy flows in the Strait of Hormuz, a key shipping route between Oman and Iran Handling approximately one-fifth of the world’s LNG trade— Iran conflict escalates.
Dutch conveyancing agency (TTF) Europe’s benchmark natural gas contract rose 35% on Tuesday to over 60 euros ($69.64) per megawatt hour. Prices are up about 76% this week.
The Northeast Asian LNG benchmark Japan-Korea Mark (JKM) covers deliveries to Japan, South Korea, China and Taiwan, A new high in a yearthe price last seen was around €43 per MWh. British gas prices have also risen sharply.
Qatar, one of the world’s largest producers of liquefied natural gas, halted production on Monday after Iranian drone attacks on Ras Laffan Industrial City and Mesayeed Industrial City. Goldman Sachs estimates that the suspension will reduce near-term global LNG supply by about 19%.
A senior Iranian Revolutionary Guard official later said the country had Close the Strait of Hormuz and warned all ships that any vessel attempting to pass through the strait would be attacked. However, the US said the route remains open, according to Fox News.
Supply is tight
Europe and much of Asia are more vulnerable to potential gas price shocks than the United States, which benefits from domestic shale oil and LNG production.
Stifel oil and gas analyst Chris Wheaton said about 25% of Europe’s total natural gas supply is LNG. He said in a report that about 20% of global LNG production is located behind the strait, and a long-term disruption could trigger a supply squeeze comparable to the impact in 2022 after Russia invaded Ukraine.
“We are more concerned about European gas prices than oil prices,” Whitten said.
Norwegian energy giant shares StatoilNatural gas, one of Europe’s largest natural gas suppliers, hit a new 52-week high on Tuesday, rising more than 2%, after closing up more than 8% in the previous session.
Equinor.
Goldman Sachs warned in a report published on Monday that a one-month disruption to the flow of water in Hormuz could cause TTF and JKM prices to rise to 74 euros per megawatt hour. This is the level that “triggers a massive gas demand response” during the European energy crisis in 2022.
European gas prices eventually peak at €345 per MWh in August 2022 Russia weaponizes gas exports Supply cuts in response to EU sanctions have pushed up domestic energy bills and triggered a cost-of-living crisis across the continent.
In a separate report late Monday, Goldman Sachs raised its April TTF forecast to 55 euros per MWh from 36 euros per MWh, with the average second-quarter forecast now at 45 euros per MWh.
“negative impact”
Patrick O’Donnell, chief investment strategist at Omnis Investments, said LNG is now a key area of concern for Europe’s overall economy. “This could have more of a negative impact on the European economy and the reindustrialization that markets have been hoping to see,” O’Donnell told CNBC’s “Squawk Box Europe” on Monday.
In fact, Goldman Sachs analysts led by Sven Jari Stehn noted that “the GDP impact of rising energy prices tends to be negative for most countries, with the exception of Norway, which produces and exports oil.”
Goldman Sachs estimates that four quarters of sustained energy price increases of 10% will reduce UK and euro zone GDP by 0.2%. Switzerland, which relies more on nuclear and renewable energy, will be flat, while oil exporter Norway will see a 0.1% increase.
In contrast, Goldman Sachs analysts see “limited upside risks” to U.S. natural gas prices.
Asian importers also affected
Asia is also vulnerable to supply disruptions.
Invesco estimates that nearly 58% of India’s LNG imports come from the Middle East, accounting for nearly 2% of its primary energy consumption. About 27% of Singapore’s LNG imports come from the region, accounting for 2.2% of primary energy use.
Invesco said that more than 37% of other Asia-Pacific countries’ LNG comes from the Middle East, accounting for nearly 3% of primary energy consumption, while 26.6% of China’s LNG imports come from the Middle East.
Elias Haddad, head of global market strategy at BBH, said countries that rely heavily on imported oil and gas and have limited fiscal space – including Japan, India, South Africa, Turkey, Hungary and Malaysia – are most vulnerable to energy disruptions, while Norway, Canada and Mexico are least affected.
“A protracted conflict would lead to further disruptions to energy production and shipping, raising the risk of stagflation and potentially exacerbating fiscal strains,” Haddad said in a note.
