In today’s interconnected world, regional conflicts possess a unique propensity to reverberate in the most unexpected sectors, with the European gas market feeling the immediate shockwaves from the ongoing Israel-Palestine confrontation known as the “Al-Aqsa Storm.”
The European Union, seemingly cushioned with a full stock of natural gas, is not as insulated as it appears. With the escalating tensions in the Middle East, the stability of these reserves stands compromised. The recent history of EU energy dynamics sheds light on its current predicament.
Europe has endured significant supply disruptions, especially after the substantial cut in gas shipments from Russia in 2022 that led to record price hikes — with gas prices soaring to unprecedented rates of 38 euros per megawatt-hour, up from 34.50 euros at the start of worker strikes in Australia. The International Energy Agency’s recent report paints a cautionary picture: while European storage facilities are almost full, accounting for about 100 billion cubic meters or roughly 33% of union countries’ consumption, this offers no assurance of price stability in the days ahead, especially if the winter turns out to be harsher.
Australia further complicates this scenario. Worker strikes at Chevron’s key gas production sites, notably the “Gorgon” and “Wheatstone” projects which jointly account for over 5% of global liquefied natural gas production capacity, threaten the blue fuel market’s global stability. A potential halt in such a substantial contribution is bound to influence global liquefied natural gas prices, leading to further price volatility in Europe.
The role of Israel in this evolving gas equation is pivotal. Instructed to halt natural gas production at the “Tamar” platform amidst the conflict, Israel’s transition over the past two decades from a gas importer to an exporter is under threat. In fact, Israeli gas exports to Egypt, which were at 800 million cubic feet daily until last week, saw a significant dip to around 650 million cubic feet daily due to the halting production at the “Tamar” platform. While Israel’s discoveries have transformed its own energy landscape, they’ve also indirectly buttressed Europe’s gas supply, especially as Europe searches for alternatives to Russian gas.
Goldman Sachs’ recent analytical report serves as a bellwether, cautioning about the ongoing conflict’s possible repercussions on global oil and gas sectors. If the confrontation escalates, we might witness a proactive production increment by key players like Saudi Arabia, leading to further fluctuations in the energy market. The bank’s analysis further indicates that European gas prices have been trending upward, especially due to concerns over the duration of the gas production disruption and geopolitical ramifications of the ongoing Middle East conflict.
The Israeli gas sector, rich with recent discoveries and substantial foreign investments, notably Chevron’s multi-billion-dollar stake in offshore gas fields, is at a crossroads. The ongoing hostilities could deter future investments, slowing the pace of development in a sector that promised so much for both Israel and Europe.
In conclusion, the “Al-Aqsa Storm” underscores the complex interplay of geopolitics and global markets. Europe, in its quest for energy security, finds itself grappling with geopolitical events far from its shores, reminding us of the intricate and delicate balance that holds the world’s energy markets together.