European gas prices reach eight-month high on Russian supply disruption worries

A tanker loads liquefied natural gas in the Russian port of Prigorodnoye. A gas transit agreement between Russia and Ukraine is set to expire at the end of the year. AP

European natural gas prices are hovering at an eight-month high on concerns about potential disruption to Russian gas supplies flowing through Ukraine.

Dutch Title Transfer Facility gas futures, the benchmark European contract, were trading 0.01 per cent higher at €40.10 ($43.80) per megawatt hour on Friday.

Futures closed 4.3 per cent higher on Thursday after clashes in Russia’s Kursk region, which houses a crucial gas intake point. The incursion was Ukraine’s most significant attack on Russian soil since the conflict two years ago.

The Sudzha gas metering station is the primary entry point for Russian gas into Ukraine, from where it is transported to various European countries.

“Despite geopolitical tensions and the confirmed seizure of the Sudzha gas metering station … the market has largely priced in this risk and supply fundamentals remain otherwise bearish,” said Christoph Halser, an analyst at Rystad Energy.

“Russia's efforts to build a shadow fleet to circumvent sanctioned energy infrastructure add complexity, as European gas markets closely monitor the potential for disruptions."

A gas transit agreement between Russia and Ukraine is set to expire at the end of the year.

Meanwhile, the EU has considered increasing gas imports from Azerbaijan and using Ukraine's existing pipeline infrastructure to deliver the fuel to Europe. Although Ukraine's total transit volumes of 13.7 billion cubic metres in 2023 accounted for 4.3 per cent of total European gas imports, countries including Austria and Slovakia are heavily reliant on Russian gas flowing through Ukraine, Rystad said.

“Gas demand is expected to remain elevated in the short term, due to above-average temperature outlooks,” Mr Halser said.

European gas markets are also watching closely for potential disruption to both regular and liquefied natural gas supplies, due to escalating tension after Iran and Hezbollah vowed to retaliate against Israel after the killing of senior Hezbollah and Hamas officials.

Last year, Israel ordered a temporary shutdown of the Chevron-operated Tamar gasfield, about 19km off the Gaza Strip, after the Hamas-led attack on October 7. Production was restarted a month later.

Israel currently supplies gas to Egypt using two pipelines that transport the fuel from the Leviathan and Tamar fields off its coast.

These fields collectively produce about 21 billion cubic metres of gas annually. Nearly nine billion cubic metres were exported to Egypt last year.

“In addition to energy infrastructure becoming a target for attacks, the worsening conflict could impact seaborne trade at the Strait of Hormuz,” Mr Halser said.

Iran has previously indicated it could close the maritime route. About 30 per cent of global oil trade passes through the Strait of Hormuz, with 70 per cent going to Asia, the International Energy Agency said.