Liquefied natural gas (LNG) prices are surging as ship operators dare not run the gauntlet of the narrow entrance to the Persian Gulf – at a difficult time for Europe, where stockpiles are running low.

A fifth of global LNG tankers must pass through the Strait of Hormuz to ferry Middle Eastern gas to global markets. Following US-Israeli strikes on Tehran, ship traffic through the chokepoint has all but ceased – sparking panic on an energy market to which the EU is heavily exposed.

On Monday morning, European gas prices surged by around 40% to around €45 per Megawatt-hour (MWh), up from around €31 the week before. Oil prices were less heavily impacted but rose by 8% as tankers carrying crude similarly found themselves stuck in the Gulf.

“Qatari cargoes only provide a tenth of the EU’s LNG imports,” said Ben McWilliams, an energy analyst with the Brussels-based think tank Bruegel. A shortage in the bloc is not considered imminent.

“However, any disruptions to the Strait of Hormuz raise the global price of LNG – meaning European importers also pay more for cargoes arriving from the US,” he added. On Monday, state-owned energy giant QatarEnergy announced it had stopped producing LNG in response to an Iran-launched drone attack on energy infrastructure.

‘Bonanza’

Seb Kennedy, an energy analyst, called the war a “bonanza for US LNG exporters and a catastrophe for everyone else”.

Ramped-up EU imports of fracked American gas have gone a long way towards replacing pipeline deliveries from Russia since the Kremlin’s invasion of Ukraine more than four years ago.

Making matters worse, the bloc’s gas storage facilities are just 30% full and must be gradually refilled before the onset of next winter.

“More gas in storage would have ensured greater security,” said Georg Zachmann, an energy expert with the Berlin-based Helmholtz Zentrum. Gas prices would have surged either way, however, he added.

“Energy sovereignty would require the EU to get rid of being dependent on most fossil fuel imports,” he said.

The view from Brussels

The impact of the latest war between Iran and the US-Israel alliance on European wallets will depend to a large extent on how long the Strait remains effectively closed to maritime traffic. Independent Commodity Intelligence Services, a market monitoring firm, said a three-month shutdown could see EU gas prices triple.

The European energy regulator ACER demanded in early February that gas grid operators should place “greater emphasis on LNG availability” amid the growing importance of tanker deliveries – which cover close to half of total demand – to the EU’s security of supply.

“The good news, because we really need good news, is that we are less than a month away from the end of the heating season in storage terms,” European Commission spokesperson Paula Pinho told reporters on Monday. “So that means we should have made it.”

(rh, aw)