Middle East Conflict: Strait of Hormuz Closure Push UK Gas and Electricity

Market Updates:

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• Wednesday saw prices soften after opening higher.
• This morning, prices again opened up, before once again softening.
• News from Iran, according to sources, suggests that Iran are ready to drop their nuclear programme in return for alternative US propositions!
• Oil is at $82.9/bbl, up 1.8%, although off earlier highs of $84.74/bbl.
• Europe's already huge task of refilling gas storage for next winter has suddenly become far riskier and far more expensive, as fallout from the U.S.-Israel war on Iran disrupts LNG production and shipments, tightening supply and sending prices soaring.
• Ongoing attacks continue across the region.

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NATURAL GAS:

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European gas markets have opened higher today after a move away from multi year highs yesterday. The market softened on renewed hopes of peace talks between the US and Iran, world leaders focussing on the safeguarding of transit through the Strait of Hormuz and also on a statement from the European Commission to say there a no immediate security of supply risks to the EU at this moment in time due to the conflict, referencing stable gas storage levels in the statement. The NBP front month contract is pricing at 135.65 p/th at time of writing, up roughly 10.00 p/th day on day as the conflict enters its 6th day and shows no signs of slowing down. The equivalent TTF contract is pricing at 52.45 €/MWh at time of writing, up around 4.00 €/MWh day on day.

The outage at Qatar’s Ras Laffan LNG production facility remains the key driver in gas markets along with the closure of the Strait of Hormuz. Yesterday QatarEnergy declared a force majeure event with reports suggesting that a restart could take a number of weeks. How long the conflict and these shut downs will last remain key to its impact on global energy markets, where a prolonged outage will significantly tighten the global LNG market.

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ELECTRICITY:

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European power markets also fell yesterday, retracing the significant gains we saw earlier this week. The UK Baseload front month contract is pricing at £106.20/MWh at time of writing, up around £6.00/MWh day on day but down from this week’s high at £125.50/MWh. The equivalent German Baseload contract is pricing at 96.10 €/MWh, also up 4.10 €/MWh day on day. The sell off yesterday was partly driven on hopes that peace talks could resume between the US and Iran. However, Iranian officials have since rebutted the claims made in media yesterday that they had reached out to the US regarding talks.

Power markets continue to take direction from gas, with the closure of the Strait of Hormuz impacting a fifth of global LNG supplies at the start of the summer injection season, where Europe is set to be reliant on LNG when refilling storages. The inverted Sum-26/Win-26 gas spread has passed through to the UK power market with the Sum-26 UK Baseload contract pricing at a £6.00/MWh premium to Win-26 at time of writing. Brent has seen some sideways price action in recent sessions with the market failing to break above $85.00/bbl. Currently Brent is pricing at $83.85/bbl at time of writing, up more than 14% since the conflict began.

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Latest Prices:

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Latest Gas & Power Annual Chart:

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