European gas prices jump as middle east risk returns to market

European demand for liquefied gas has risen since the continent lost the bulk of its Russian piped supply.

European natural gas prices surged after Israel carried out a wave of strikes against Iran, raising fears of a wider war in a region that’s key to global energy supplies.

Benchmark futures jumped as much as 5.7% on Friday, the most in more than five weeks. Gas rose in tandem with broader energy markets, with oil spiking.

Israel launched airstrikes against Iran’s nuclear program and ballistic-missile sites Friday morning, with explosions heard across Tehran and other cities. The operation marks a major escalation in the standoff between the two adversaries, with Iran vowing Israel will “pay a very heavy price.”

A key concern is that hostilities could disrupt shipments through the Strait of Hormuz, an important waterway for liquefied natural gas and oil. While Tehran has frequently threatened to close Hormuz during times of geopolitical strife, it hasn’t done so. Physical delivery of LNG doesn’t currently appear to be affected, but may face delays should vessels start avoiding the strait.

“The risk for energy markets lies in a wider regional escalation involving major crude oil and natural gas suppliers,” Rabobank energy strategist Florence Schmit said. Qatar, Oman and the United Arab Emirates operate roughly 98 million tons of LNG export capacity, 18% of global supply, she said.

European demand for liquefied gas has risen since the continent lost the bulk of its Russian piped supply. Ample flows will be crucial in the coming months as the region restocks depleted storage facilities ahead of winter.

Qatar is among the top three LNG suppliers, and any disruption to its exports could push gas above €100 a megawatt-hour in a “worst-case scenario,” Schmit said. While Europe gets most of its liquefied fuel from the US, “losing even a small amount of supply is a major bullish driver” for the market, she said.

Closer to home, traders are also watching for any further disruptions in Norway, Europe’s biggest piped-gas supplier. A large processing plant there is currently undergoing an unplanned outage, squeezing flows that were already curbed by seasonal maintenance.

Dutch front-month futures, Europe’s gas benchmark, traded up 3.23% at €37.34 a megawatt-hour as of 9:12 a.m. in Amsterdam.

European power futures also advanced, with the year-ahead German contract surging to its highest since February, according to EEX.