Liquefied natural gas (LNG) prices could rise this winter due to the escalating war in the Middle East, which could cause shipping restrictions via the Suez Canal.
In 2022, 16% of the LNG supply to Europe passed through the Suez Canal, meaning any disturbances to the waterway caused by the Israel-Palestine war could affect gas prices drastically this winter.
LNG prices have increased by more than 40% since Hamas attacked Israel on 7 October. In Israel, the Tamar platform operated by Chevron was shut on 9 October due to damages, and this gas field produced 10.2 billion cubic metres in 2022. Most of that was used domestically, but 15% was exported to Egypt and Jordan. Chevron halted all natural gas exports via the East Mediterranean gas pipeline.
Chevron’s supplies were already limited by strikes at their LNG plants in Australia.
Michele Soldavini, energy market analyst at Fedabo consultancy, told Montel that a Suez Canal closure would have “massive” implications. When the Ever Given ship blocked the Suez Canal in 2021, LNG markets were disrupted, and Soldavini predicts a similar scenario if the current situation escalates and affects the waterway.
“The price impact would, of course, be very high, as the market’s recent volatility has underlined,” Soldavini added.
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In the case of a complete shutdown, LNG would have to be transported to Europe via the Cape of Good Hope. According to market sources, it takes around 20 days to ship LNG from Qatar to Belgium via the Suez Canal, but via the Cape of Good Hope, it takes more than 30 days.
However, according to David Tabarelli, head of the think tank Nomisma Energy, the likelihood of a complete shutdown of the key Egyptian conduit is low.
Regardless of developments in the war, the Suez Canal Authority said this week it would increase transit fees for LNG and oil tankers by 15% in mid-January 2024.