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<\/p>\n(Bloomberg) — A global fight for liquefied natural gas threatens to unravel Europe\u2019s strategy of delaying winter purchases until the Strait of Hormuz reopens.<\/p>\n
Governments and energy companies ended last winter believing they could afford to delay rebuilding stockpiles, even as they hit the lowest levels since 2022. The jump in gas prices following the start of the Iran war in late February made it hard to justify purchases, while traders bet diplomacy would eventually prevail and flows through the strait \u2014 a conduit for a fifth of LNG supply \u2014 would resume.\u00a0<\/p>\n
Nearly five months later, that wager is looking risky. Fighting in the Middle East has flared up again, gas prices are near their highest since the conflict began and Europe is well behind its usual stockpiling pace. Asian buyers from China to Pakistan have been snapping up available LNG shipments to replace lost Qatari supply, effectively pulling cargoes away from Europe.<\/p>\n
A key question is whether governments \u2014 particularly in the largest market Germany \u2014 will intervene to support purchases if Hormuz remains shut, potentially fueling a bidding war with other regions in the months ahead. Few doubt Europe will secure enough fuel for winter. The bigger risk is the cost \u2014 and whether households and industry can stomach another jump in heating and power bills just a few years after the region\u2019s last energy crisis.<\/p>\n
\u201cWe have been like the frog in the boiling water,\u201d said Anne-Sophie Corbeau, a researcher at Columbia University\u2019s Center on Global Energy Policy and former head of gas analysis at BP Plc. \u201cThe question is whether the frog will jump because now gas prices are increasing \u2014 fast.\u201d<\/p>\n
<\/p>\n
A resumption of LNG traffic through Hormuz remains a distant prospect, with exports effectively halted since a Qatari carrier was struck about two weeks ago. Hopes for a diplomatic breakthrough have faded, with Washington and Tehran downplaying the possibility of talks, while President Donald Trump has threatened to bomb bridges and power plants in Iran.<\/p>\n
The economic consequences would be significant. Energy consultancy Baringa Partners estimates that if Hormuz remains closed through September, soaring gas and power prices could be enough to tip the UK and Europe into a contraction toward the end of the year.<\/p>\n
\u201cEuropean buyers are now having to go to the market and buy gas and pay these prices they weren\u2019t willing to before,\u201d said Caspian Conran, economist at Baringa. \u201cOtherwise we\u2019re going to freeze in the winter.\u201d<\/p>\n
Qatar, normally the world\u2019s second-largest LNG exporter, is preparing for a prolonged disruption. It sent several shipments through Hormuz following an ill-fated US-Iran interim peace pact in mid-June, but now plans to extend its force majeure for European customers until the middle of October and for Asia until September, according to people with knowledge of the matter.\u00a0<\/p>\n
That would all but eliminate any chance of Europe drawing on Qatari supply in the run-up to the heating season. European Union gas inventories are just over 54% full, well below a five-year average of 70% and short of the bloc\u2019s Nov. 1 target of 80%.<\/p>\n
\u201cNo one expected the US-Iran war to escalate again,\u201d said Alex Siow, lead gas analyst for Asia at Independent Commodity Intelligence Services. \u201cTime is getting tight. EU will have to ramp up its purchases now if it were to hit the target.\u201d<\/p>\n
According to Corbeau, Europe would have needed LNG arrivals to match last year\u2019s pace to hit the 80% storage target. Instead, Bloomberg ship-tracking data show deliveries are running about 27% below last year\u2019s levels, based on a 30-day moving average, while imports into Asia have climbed. The shift suggests Asian buyers \u2014 which sourced about a quarter of their LNG from the Gulf last year \u2014 are seeking supply from other sources, leaving Europe with fewer alternatives.<\/p>\n
\u201cDevelopments in the Gulf are leading market participants to price a prolonged disruption, leaving Europe more vulnerable to a cold shock as we saw in January and parts of February this year,\u201d said Marco Saalfrank, head of continental Europe merchant trading at Swiss-based Axpo Holding AG.\u00a0<\/p>\n
The EU has also committed to ending Russian LNG imports by January 2027, reducing one of its key supply options. Fuel from the exporter made up 17% of Europe\u2019s deliveries between January and June this year, ship-data shows. EU members this week failed to push through a proposal that would restrict firms from transferring Russian LNG to third countries.<\/p>\n
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<\/p>\n
Searing temperatures across Asia are keeping LNG demand elevated, with Pakistan, Bangladesh and India buying spot cargoes at some of the highest prices in years. Traders and policymakers see few signs that demand will ease despite the higher costs. Those countries are under pressure to secure fuel or face rolling blackouts or factory shutdowns.<\/p>\n
China, the world\u2019s biggest LNG importer, is also returning to the market. The country has ramped up purchases ahead of peak summer demand while rebuilding inventories, with June imports up 8.3% from a year earlier. Chinese buyers have increased procurement from exporters outside the Gulf to offset Qatar.<\/p>\n
Even Japan, which leaned more on coal in March and April, is now boosting gas-fired generation as blistering hot weather boosts power prices to the highest level in over three years. That risks draining storage and adding pressure on utilities to buy from the spot market. The same goes for South Korea and Taiwan.<\/p>\n
\u201cAsian countries are organizing tenders, Europeans are not,\u201d Corbeau said.<\/p>\n
It remains unclear at what point European utilities and governments will be willing to compete for winter supplies. In May, Germany\u2019s gas market manager said it won\u2019t intervene in refilling inventories, citing conviction that private market actors will eventually do so themselves. In other countries, such as Italy and the Netherlands, governments have started to provide some support, raising the risk of fierce competition for supplies within Europe.<\/p>\n
The last time Europe faced similar difficulties in rebuilding its inventories was shortly after Russia curbed pipeline supplies in 2022. The region got through that winter largely thanks to exceptionally mild weather, but counting on a repeat is a risky bet.<\/p>\n
\u201cIf it\u2019s not a warm winter, then there\u2019ll be problems and the problems will be exacerbated by having less gas and storage,\u201d Centrica Plc\u2019s Chief Executive Officer Chris O\u2019Shea said on a call with journalists following earnings on Thursday. \u201cIt is not a very good risk management strategy to hope for a warm winter.\u201d<\/p>\n
\u00a92026 Bloomberg L.P.<\/p>\n","protected":false},"excerpt":{"rendered":"(Bloomberg) — A global fight for liquefied natural gas threatens to unravel Europe\u2019s strategy of delaying winter 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