Geopolitical tensions propel natural gas prices to 8-month high

Muhammed Khalid , Wednesday 25 Oct 2023

Natural gas prices experienced a significant surge to an eight-month high due to geopolitical tensions and uncertainty stemming from the Israeli war on Gaza, which started on 7 October, according to a report by Kuwait’s KAMCO Investment Company.

Israel s Tamar natural gas field.
Israel s Tamar natural gas field.

 

The conflict led to the closure of the Israeli Tamar gas field in the Mediterranean Sea and concerns about interference and sabotage, such as a leak in the Baltic Sea gas pipeline between Finland and Estonia.

Despite this recent price spike, European natural gas prices had been under pressure compared to prices in Asia and the US, which had strengthened earlier in the year.

These geopolitical tensions caused a 36 percent increase in Dutch TTF Natural Gas Futures, from €36.650 per megawatt-hour (MWh) on October 6, 2023, to €49.9 MWh by October 23, 2023.

War’s impact on Egypt
 

The suspension of production from the Tamar gas field led to a 59 percent decline in Egypt’s gas imports from Israel, which reached around 350 million cubic feet per day (MMcf/d), down from over 850 MMcf/d before the eruption of the Israeli war on Gaza, according to a report by the Egyptian Natural Gas Holding Company (EGAS) cited by CNN.

Egypt’s gas imports from Israel surged 42.77 percent to 272.7 billion cubic feet (Bcf) in the fiscal year 2022/2023 from 191 Bcf in FY2021/2022, EGAS report said.

A report issued in September by the Egyptian Ministry of Petroleum and Mineral Resources showed that gas production in the giant offshore Zohr field went down by 11 percent in the fiscal year 2022/2023.

Egypt plans to dig 35 new exploratory natural gas wells in the Mediterranean and the Nile Delta by 2025 with $1.8 billion in investments.

Twenty-one wells will be completed during the fiscal year 2023/2024 and 14 in 2024/2025 to make up for the decline in gas supply and the increasing domestic demand.

Global market overview
 

Global demand for natural gas was expected to slow down, with a shift from 2.5 percent growth per annum from 2017 to 2021 to an average of 1.6 percent growth during 2022-2026, according to the International Energy Agency (IEA).

On the supply side, global natural gas production was forecasted to see marginal growth of 1.2 percent in 2023, mainly driven by North America, the Middle East, Asia Pacific, and Africa, while European gas production continued to decline.

Asia, particularly China, witnessed growth in natural gas demand, with natural gas consumption in China increasing by 11 percent year-on-year in August 2023.

The global natural gas market was under strain due to the unavailability of additional gas supplies to compensate for the drop in Russian natural gas supplies to Europe. In North America, natural gas demand was expected to decline gradually. However, demand for natural gas in the Asia Pacific region has grown significantly, supported by strong economic growth and policies to switch from coal to natural gas power generation.

Natural gas consumption in the United States was expected to stabilize, and production was forecasted to increase. The US was set to export more liquified natural gas (LNG), driven by the rise in LNG exports and pipeline natural gas exports to Mexico.

In its latest short-term energy outlook, the US Energy Information Administration (EIA) forecasted that natural gas consumption in the country in 2023 would increase by 0.8 percent compared to that in 2022 at 89.17 bcf/d, reflecting an overall expected consumption stabilization in the country.

The EIA also estimates US natural gas marketed production to reach 103.72 bcf/d in 2023, an increase of 4.1 percent from 2022 to 2023.

In the GCC region, Qatar signed a significant LNG contract with European companies to fill European gas storage facilities in light of the absence of Russian pipeline natural gas.

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