European Gas Prices Soar Amid Iran War Disruption

Europe's economy is facing a new challenge as natural gas prices have more than doubled in the past year, reaching €75 per megawatt hour (MWh). This surge is attributed to the Iran war, which has disrupted Middle Eastern exports of liquefied natural gas (LNG) and tightened global markets.

The Strait of Hormuz closure over six months ago has choked off around 20% of global LNG supplies. The resulting supply crunch led to fierce competition between Europe and Asia for gas, diverting large volumes eastward during the summer months. This disruption severely impacted Europe's efforts to refill its underground storage network ahead of the winter heating season.

Currently, European gas storage sites are at their lowest level in 15 years, with only 66% capacity utilized. Germany and the Netherlands, two critical regional gas hubs, have even lower storage levels at 54% and 48%, respectively. This will increase dependence on spot LNG cargoes and pipeline imports from neighboring states, further driving up gas prices.

The disruption is unlikely to ease soon as LNG exports from the Persian Gulf fell by more than 85% between March and August compared with a year earlier. The global LNG market has been supported by rapid production growth elsewhere, particularly in the US and Canada, but prices remain at painful levels.