War Disrupting Global Energy: European Natural Gas Surges 30% Goldman Sachs Quickly Raises Expectations

As the ongoing Middle East conflict continues to disrupt the energy market and block maritime supplies, European natural gas prices have surged. On Monday, benchmark natural gas futures prices soared by as much as 30%, marking the largest weekly increase since the energy crisis. At the same time, due to production cuts by several major oil-producing countries in the Middle East and the continued closure of the Strait of Hormuz, international oil prices have surpassed the $100 per barrel mark. US natural gas futures prices have also risen, reaching their highest point in a month. As of the time of writing, the European natural gas benchmark - the Dutch prompt month futures contract prices have risen nearly 17%, reaching 62.40 euros per megawatt-hour. As of this week, the conflict has been ongoing for ten days with no signs of easing, adding uncertainties to the energy market and exacerbating inflation pressures. For the natural gas market, Europe is particularly vulnerable - having just gone through winter consumption, gas storage facilities are nearly empty. This means that this summer, a large amount of liquefied natural gas will need to be purchased to replenish stocks. If oil and gas from the Middle East cannot be shipped normally, Europe will have to compete with Asian buyers for limited global supplies. "The market is gradually realizing the reality of long-term supply interruptions throughout the entire energy value chain," noted Florence Schmit, energy strategist at Dutch cooperative bank. "We expect the supply interruption to last for about three months." Although current gas prices are far from the historical highs set during the energy crisis - currently around 64 euros per megawatt-hour, compared to the peak of over 300 euros per megawatt-hour - the chain reaction of the conflict could still reshape the global natural gas market landscape. Analysts from Morgan Stanley pointed out in a report that if the major exporter Qatar's production of liquefied natural gas were to stop, it could completely reverse some institutions' expectations of a market supply surplus earlier this year. Once production stops for more than a month, "supply gaps will quickly become apparent." After the world's largest liquefied natural gas base in Qatar's Ras Laffan plant experienced its first-ever halt last week, the main facilities appear to be intact. However, according to the country's energy minister, restarting and resuming deliveries could take weeks or even months. Following Qatar Petroleum's suspension of production of liquefied natural gas and related products last week, they have declared force majeure to affected buyers, including European users such as Italy's Edison SpA and Poland's Orlen SA. Goldman Sachs analysts led by Samantha Dart have raised their expectations for European second-quarter gas prices from 45 euros per megawatt-hour to 63 euros per megawatt-hour, mainly due to the possibility of a longer interruption in Qatar's exports. This forecast assumes that Qatar's liquefied natural gas shipments will remain at zero until the end of March and gradually restore capacity in April, a cycle far beyond previous expectations.