European gas prices rise due to fears of winter shortages from US-Iran war

Prices for natural gas in Europe have reached their highest point in four months. This is happening because the conflict in the Middle East is growing, leading to worries about not having enough supply for the winter.

The main measure for natural gas prices in Europe, the Dutch benchmark, went above €60 per megawatt hour (MWh) for a short time on Monday. This is close to the highest prices seen when the conflict between the US and Iran first started. The US has increased its air attacks, and Iran has responded by attacking Bahrain and Kuwait.

Experts believe that Europe's gas supplies will be under pressure this winter. The current conflict is delaying the expected return of liquefied natural gas (LNG) exports from Qatar. This is especially important during the summer, which is a key time for storing gas for the colder months.

A difficult winter start would significantly increase the cost of reaching the European Union's target of having 80% of its gas storage full. While ensuring a secure supply is still possible, the expense of doing so is rising quickly. If gas prices stay around €60 per MWh, it might lead to expensive government actions to protect the supply. However, computer models suggest that European gas storage could still reach its targets by the end of November.

Currently, European gas storage is less than 54% full. Last year, at the same time, it was 64% full. Since the conflict began on February 28, only about 26 LNG ships have successfully travelled east out of the Gulf. Usually, between 90 and 100 ships make this journey each month.

European countries might have to pay around €54 per MWh in the autumn to refill their gas supplies. This price could go up to €60 per MWh if the winter starts colder than expected. The interruption of LNG exports from Qatar has already impacted gas supplies, causing experts to lower their forecast for global LNG supply this year.

The recent increase in fighting also affects oil markets. Brent crude oil briefly went above $90 a barrel on Sunday, the highest it has been in a month. The price then decreased after Iran announced that diplomatic discussions with the US, through intermediaries, were continuing despite the attacks. The price of gas later fell on Monday to about €57 per MWh.

The rise in gas prices serves as a reminder that actions taken in the UK have little effect on the price paid for gas. The reality is that the UK, like Europe, is connected to international markets and affected by the instability caused by wars happening far away.