Natural gas prices in Europe surged on Tuesday following US military strikes on Qeshm Island, Iran. These developments raised concerns about disruptions in gas supply from the Strait of Hormuz to a high level once again.
Increase in Natural Gas Prices
The front-month contract for the Title Transfer Facility (TTF) in the Netherlands rose by 4% to €98.60 per megawatt-hour (MWh). This price increase followed the largest daily drop since March, which occurred on Monday. In the UK, NBP futures also rebounded quickly, increasing by 4.5% to 245.60 pence per therm.
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After a US official confirmed attacks on Iranian assets on Qeshm Island, hopes for an agreement between Iranian and Qatari officials to end the US-Israel conflict with Iran significantly diminished. These US officials described the operation as defensive, stating its aim was to prevent Iranian forces from targeting commercial vessels.
Economic Consequences and Gas Supply
In the wake of these developments, Brent crude oil prices increased by 1.76% to $106.61 per barrel, while West Texas Intermediate (WTI) crude rose by 1.66% to $98.06 per barrel. Energy traders quickly moved to adjust their positions in the European natural gas market.
Goldman Sachs raised its forecast for TTF gas prices in the first quarter of 2027 to €74 per MWh and adjusted its annual average forecast for 2027 to €51 per MWh. The bank noted that this change reflects a 45% likelihood of a low gas supply scenario in the Middle East winter.
As LNG exports from the Persian Gulf are limited to 25% to 30% of normal levels and temperatures in Northwestern Europe drop significantly below average, Goldman Sachs warned that TTF prices in the first quarter could rise to nearly €150 per MWh.
Considering that futures contracts are trading at around €92 per MWh in the first quarter, the market has implicitly priced in a 47% chance of this severe pressure scenario. Goldman Sachs analysts, led by Samantha Dart, emphasized that the range of outcomes for TTF prices this winter is significantly wide.
EU underground gas storage levels are only about 74% full, which is significantly below the seasonal normal and puts regional reserves at risk of early depletion.
While Europe heavily relies on Norwegian pipeline gas for base consumption, utilities depend on continuous LNG imports to offset structural shortages and meet peak heating loads. The rerouting of ships around the Cape of Good Hope in Africa has severely reduced Middle Eastern LNG deliveries to European regasification terminals.
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