The gas crisis is not over yet

Politics and luck have allowed Europe to take a respite from the high gas prices reached between the winters of 2022 and 2023, but prices are rising again and the worldwide gas market stays precariously balanced.

Rising tensions within the Middle East could turn this the other way up. If the conflict spills over to the Persian Gulf, it could disrupt liquefied natural gas (LNG) supplies from Qatar, which accounts for 20% of world exports.

We imagine that this winter shall be the ultimate act of the gas crisis. Here’s what we must always expect.

Dangerously underprepared

There is an argument for the UK to quickly phase out natural gas for heating and power generation overwhelming. This would ease household bills from costly gas imports and make the country less vulnerable to energy supply disruptions, while also reducing greenhouse gas emissions. This will take time to do: as of today, the UK is depending on gas 37% of total energy consumption.

British households particularly are dangerously exposed to gas prices. Directly, because 4 fifths of households use gas for space heating. Indirectly, because in Great Britain electricity prices are set by price of gas-fired generation. After a decade failed home insulation and energy efficiency policiesThe UK still has a number of the draftiest homes in Europe. It simply takes more energy to heat British homes which are losing heat thrice faster than European neighbors.

Since the start of the last crisis, the UK government has done little to alter these facts. There is recent concern over the top of the winter fuel payment for pensioners. The Energy Crisis Commission recently concluded that the UK stays “dangerously underprepared” for a repeat of the gas price explosion of 2022–2023.

To sum up, Great Britain cannot remain indifferent to the developments on the worldwide gas market.

Crisis within the making

Resurgent gas demand following the lifting of Covid-19 restrictions led to a four-fold increase in UK gas prices in 2021. Following Russia’s invasion of Ukraine in February 2022, Vladimir Putin restricted gas gas exports via pipelines to Europe.

Europe has turned to its largest source of flexible gas supplies: marine LNG. There was a price competition for cargo. The purchasing power of European economies has diverted supplies from low-income Asian countries akin to Pakistan and Bangladesh, leading to debilitating blackouts ia switch to coal energy.

Energy bills for the typical UK household reached £4,279 in January 2023. The government protected consumers from the worst costs £51 billion in 2022-23but a mean household in 2022 it lost 8% of its budget on account of energy costsrising to 18% for the poorest tenth of households. About 2 million households using prepaid meters were cut off from their energy supplies at the very least once a month at the peak of the crisis.

Mild winters, moderate gas demand in Asia and effective measures to cut back gas demand in Europe have caused UK gas prices to fall from mid-2023. But they are still relatively high – at a level of 48% above the typical of the three years preceding Russia’s invasion of Ukraine.

Another winter

Could the situation worsen? Already in 2022, experts were talking a couple of “three-winter crisis”, as significant recent LNG export capability (mainly within the US and Qatar) was not expected until 2025. This is true, and provide and demand in the worldwide LNG market remain tight.

A number of disturbances can upset this balance. The International Energy Agency expects global gas demand to grow throughout 2024 exceed the expansion rate of recent LNG supplies. Attacks by Houthi militia in Yemen on merchant ships within the Red Sea in response to Israel’s invasion of Gaza have resulted in a change in LNG transport routes. Cargo that will transit through the Suez Canal must now take an extended route across the Cape of Good Hope.

At the top of 2024, a vital five-year agreement regulating the transit of Russian gas through Ukraine will expire, and no prospects for renewal. Supplies of Russian gas to Europe will decline approximately 5% of total gas imports to the EUwhich accounts for 65% of total gas imports to Austria, Hungary and Slovakia.

Although Europe has been spared by mild winters over the past two years, this happiness may break in response to some forecasts in 2024-25. Temperature – and the warmth demand it generates – will likely determine winter gas prices in Europe.

Geopolitical response

How could the worst-case scenario of a conflict within the Persian Gulf come true?

The escalation of Israeli military attacks on Hezbollah since September 17 coincided with this event gas prices in Great Britain increase by 17%.. Following Iran’s missile and drone attacks on Israel on October 1, European gas prices reached a brand new high this yr. Thus, three LNG tankers headed to Asia change course mid-trip and go to Europe.

Israel announced revenge for the Iranian attack. After the destruction of Gaza and the beheading of Hezbollah’s leaders, and with the decisive material support of the United States, Israel can they now see Iran as defenseless.

A harsh Israeli response targeting Iran’s nuclear facilities or oil infrastructure would raise the stakes even further. Wanting to avoid direct conflict, Iran could select not to take care of Israel, but with the flow of oil and gas through the Strait of Hormuz, on which its Western backers depend. Qatar’s LNG supplies through the strait 20% of world supply alone.

Any disruption would also block Iran’s oil exports, affect Iran’s friends as much as its enemies, and kill Iran. current reconciliation with the Persian Gulf countries. This is unlikely, but one can hope that warning signs in the worldwide gas market will remind Western policymakers that the conflict within the Middle East may proceed to affect them.