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European natural gas prices hit their highest since March on Thursday as traders worried global energy supplies would be hit by pipeline disruptions and conflicts between Israel and Hamas.
Europe’s benchmark Dutch natural gas futures contract rose 14.2% to 53 euros per megawatt hour, a rise of more than 30% since Hamas attacked Israel over the weekend.
The moves are the latest jolt to a market that has been volatile since Russia invaded Ukraine last year. Prices have fallen from a peak of more than 300 euros per megawatt hour in August 2022, and Europe has largely filled gas inventories in preparation for winter to buffer against further supply disruptions.
But once the continent’s winter stocks draw down, continued increases will push prices higher for businesses and consumers. While oil markets have largely shrugged off the impact of the conflict between Israel and Hamas, traders are increasingly worried about threats to global supplies.
Israel cut export output to Egypt in response to the attack, while Finland said it suspected damaged pipelines were sabotaged and a strike by Australian workers has not yet been resolved.
“Gas prices are rising due to reduced supply, but arguably more important are supply risks,” Edward Gardner, commodities economist at Capital Economics, said in a note on Thursday. “Perhaps the bigger concern is that the conflict between Hamas and Israel could turn into a regional conflict.”
On Monday, Israel’s Energy Ministry ordered U.S. company Chevron to temporarily halt operations at the Tama gas field, the closest of Israel’s three offshore natural gas projects to Gaza, over security concerns.
Tamar accounts for about half of Israel’s annual natural gas production of more than 20 billion cubic meters, according to Capital Economics. While most of Israel’s natural gas is consumed domestically, about one-third is exported via pipelines to Egypt and global markets. It is also an important supplier of LNG to Europe.
“With the Tama out of production, it will be difficult for Israel to continue exporting natural gas to Egypt through pipelines. This means that Egypt’s LNG exports to global markets are unlikely to recover significantly after a seasonal lull,” Gardner added.
He added that production from Israel’s other major gas field, the Leviathan field near Lebanon, could also cease if the conflict in the Middle East expands.
Meanwhile, traders in Northern Europe fear a leak discovered on Sunday in the 77-kilometer-long Baltic gas pipeline between Finland and Estonia could be the result of sabotage.
“The geopolitics of the (Baltic) pipeline leak is more of a driver of higher prices than a loss of gas supply to the market,” said Tom Marzec-Manser, head of gas analysis at energy market intelligence firm ICIS.
Finnish President Sauli Niinistö has discussed the loss with NATO Secretary-General Jens Stoltenberg and the country is working to identify the leak and the data between Finland and Estonia Reasons behind cable breakage.
Marzec-Manser said traders were “very nervous” because they didn’t know the cause of the leak.
Meanwhile, Australian workers at a liquefied natural gas plant run by US company Chevron have threatened strike action, also exacerbating global supply concerns.
The dispute highlights how European prices are increasingly influenced by the global LNG market as Europe weans its reliance on cheap Russian gas. Workers are in dispute with Chevron over wage conditions at its Gorgon and Wheatstone plants, which account for about 7% of global LNG supply.
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