On 12 October, natural gas prices in Europe shot up to their highest since March as traders worried that the new Mideast war will sharpen global demand for fossil fuels. Also, Finland speculated that a leaking pipeline between it and Estonia had been sabotaged.
At one point during the day, the price was up 14.2 percent to €53 per megawatt-hour before easing. The price has risen 30 percent since Hamas attacked Israel but remains well below the €300 high in August 2022.
Europe has topped its gas storage reserves for this winter. However, continued high prices could hurt businesses and households if they sustain after the winter reserves are depleted.
Also, workers at Australia’s liquefied natural (LNG) gas export terminals are threatening to strike.
“Gas prices have risen due to…risks to supply,” Capital Economics commodities analyst Edward Gardner wrote in a 12 October note. “Perhaps the bigger concern is that the Hamas-Israel conflict could morph into a regional conflict.”
On 11 October, Israel ordered Chevron to shut down its Tamar offshore natural gas production platform closest to Gaza due to security risks. Tamar makes up half of Israel’s gas production. The country exports significant amounts of gas to Europe as liquefied natural gas.
TRENDPOST: Low oil and gas prices over the summer bought Europe time to top up its winter gas reserves at affordable prices.
Thanks to El Niño, winter temperatures across Europe currently are predicted to be slightly above normal. If that forecast holds, Europe could sail through the winter with no gas crisis. Meanwhile, Australia’s labor strife could resolve itself and the Mideast war might be contained.
However, short-term fixes and counting on good weather are not long-term solutions.
After a brutal summer heatwave and widespread wildfires in southern Europe, countries are backtracking on their timetable to “go green” by 2050, a plan that includes significant cuts to fossil fuels by 2030.
It is unlikely that Europe will ever again become dependent on Russia’s supplies of natural gas. However, the world’s supply of pipelined gas or LNG has not yet caught up to Europe’s normal level of demand.
The stage is set for Europe to remain on the precipice of an energy crisis that depends on war and weather.
Again, there are two wild cards that, if played, will make a very bad situation much worse: Ukraine War and Israel. Should one and/or both of them dramatically ramp up, energy prices will rapidly spike and economies and equities will significantly decline.