Wholesale natural gas prices in Europe rose on Friday, reaching their highest level since late 2022 due to escalating military conflicts in the Middle East and growing concerns about the ongoing gas supply during the winter season. On this day, the price index increased by 3.8% to €93.40 per megawatt hour (MWh), resulting in a weekly increase of nearly 7%.
Price Increase in the UK
In the UK, the equivalent price also rose by 3.5%, reaching 229.00 pence per therm, indicating a 6.2% increase at the end of the week. Both indices have stabilized at high levels for 2022, with markets raising prices in light of increasing geopolitical risks.
Impact of Conflicts on Gas Supply
The immediate factor behind the price increase is the severe deterioration of security conditions in the Middle East, which poses a threat to vital maritime transit corridors. Houthi rebels in Yemen, backed by Iran, have carried out coordinated attacks on transportation and energy infrastructure in Saudi Arabia, including a deadly attack on a civilian airport in Dammam and an attack on the Al-Shaybah oil field.
Following these attacks, the U.S. State Department evacuated non-emergency personnel and their family members from American diplomatic missions in Saudi Arabia, and plans are underway to reduce staff presence from other regional posts.
These conflicts have also severely restricted the navigation of liquefied natural gas (LNG) carriers through the Strait of Hormuz, forcing fleets to take longer routes away from Africa and significantly reducing the arrival of gas shipments at European regasification terminals.
Energy markets have benefited from increasing diplomatic pressures between Tehran and Western powers, as well as the simultaneous rise in international oil prices. Iranian officials have publicly rejected negotiations with Washington, and state media reported unexplained explosions near the strategic Sirik port alongside the Strait of Hormuz.
Crude oil prices have reached $114 per barrel, the highest level in over five months, which is boosting inflationary pressures and input costs in energy-intensive European industries.
The weekly increase in European natural gas curves has made the continent vulnerable to winter heating demand. Underground gas storage facilities across the European Union are about 75% full, significantly lower than the historical average of 86% for late October, making public services vulnerable to early cold spells.
Given that LNG imports from the Middle East to Europe are nearly 80% lower than last year and due to transportation bottlenecks, European buyers are facing aggressive price competition from Asian companies for available cargoes in the Atlantic region, which has maintained stable pricing in European paper contracts.
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