US-Israeli strikes on Iran and Tehran's retaliatory moves, alongside a rising geopolitical risk premium, are driving sharp gains in natural gas markets while reigniting debate within the EU over sustainability of its ban on Russian gas.
Halt in tanker traffic through the Strait of Hormuz, a critical chokepoint for global energy supply, is intensifying fears of prolonged disruptions along the route that handles about 20% of global LNG trade, strengthening upward pressure on gas prices.
Another development heightening market anxiety came from Qatar. State energy firm QatarEnergy announced on March 2 that it had suspended production at Ras Laffan LNG facility and expanded restrictions on March 3 to include LNG and related products.
Disruption in Qatar, which accounts for roughly 20% of global LNG supply, is fueling fears of tightening spot availability and has triggered a sharp rally in prices over the past 48 hours.
In Europe, April futures at Netherlands-based Title Transfer Facility (TTF), the region's most liquid gas trading hub, closed at €31.95 per megawatt-hour on Feb. 27.
As geopolitical tensions escalated, prices climbed 38.4% to €44.5 on March 2.
Contracts surged a further 20.4% on March 3 to close at €54.29 per megawatt-hour, bringing total gains since before strikes to nearly 70%.
Europe faces renewed test of its strategy to phase out Russian gas imports as geopolitical risks mount and prices surge.
Before the Russia-Ukraine war, about 45% of EU gas consumption was supplied by Russia. That share dropped to around 13% last year as the bloc accelerated diversification efforts.
Kirill Dmitriev, special presidential envoy for Investment and Economic Cooperation with Foreign Countries, said on March 2 that rising energy costs are putting pressure on European economies and suggested Europe could again need Russian supplies to safeguard energy security.
EU Council said in January that member states had endorsed legislation aiming to phase out pipeline gas and LNG imports from Russia by the end of 2027.
Natural gas storage levels across EU currently stand at roughly 30%, adding to concerns over supply security if geopolitical tensions persist.
- EU unlikely to reverse Russian LNG ban
Europe's shift away from Russian gas is continuing and geopolitical risks are unlikely to fundamentally alter that strategy, Erisa Pasko, senior European gas analyst at Energy Aspects, told Anadolu.
Pasko underlined that EU is unlikely to reconsider decision to phase out Russian LNG even if a peace agreement is reached between Russia and Ukraine. "The EU is unlikely to reverse its ban on Russian gas and LNG, with the latter in place from 2027, even in the event of a Russia-Ukraine peace deal."
She noted that in the near-term Europe cannot increase its Russian imports given both political opposition and legal challenges related to contractual disputes.
"Beyond the short-team risks, the significant growth in global LNG supply and declining domestic gas demand means Europe can more than replace those lost Russian volumes once the ban kicks in," Pasko added.
As Europe has lost much of its supply-demand flexibility, it "cannot rely on Dutch and Norwegian production flexibility or Russian and Algerian pipeline import nomination flexibility. Therefore any sustained losses to Middle East supply would require European prices to increase further to outbid Asian countries," she noted.
Rising energy prices in short and medium term could also put pressure on inflation and industrial output in Europe, she said. While industrial production has partially recovered due to increased defense sector activity, energy-intensive industries, particularly chemicals and petrochemicals, have not seen similar recovery.
- US expected to supply about 60% of Europe's LNG in 2026
Ed Cox, global LNG analyst at ICIS, also said that Europe has become heavily dependent on the US, now the bloc's second-largest gas supplier after Norway.
"ICIS expects that 60% of LNG into Europe will come from the US in 2026," Cox said. "While there have been concerns over such a dependency on US LNG, the EU's main priority remains to move away from buying Russian gas and LNG which will be fully phased out over the next 18 months," Cox added.
He noted that reliance on US LNG presents both advantages and risks.
"Europe's dependency on US LNG could benefit it in the future as LNG production expands and prices fall. But it also means Europe will be more exposed to wider geopolitical issues and competing demand, especially from Asia," he said.
Cox added that EU aims to reduce overall gas demand and accelerate transition to renewable energy but will remain strongly reliant on LNG imports for at least next decade.
Major European energy companies hold long-term stakes in Qatar's LNG infrastructure, he said, adding that the EU is expected to seek continued and reliable LNG flows from Qatar as part of its diversification strategy.
Cox also marked that Europe imports LNG cargoes from a wide range of suppliers and that additional volumes are expected to come from new developments such as the expansion of the Congo LNG project.
However, he stressed that none of these projects match the scale of Qatar's export capacity, meaning any disruption in Qatari supply would have consequences for global LNG markets and affect buyers worldwide.
By Duygu Alhan
Anadolu Agency
energy@aa.com.tr
