European gas markets experienced a significant surge in prices, with the Dutch TTF gas futures index rising by nearly 7% to reach €54 per megawatt-hour. This substantial increase marks the highest level since mid-February and has raised concerns regarding supply stability.
The catalyst for this price hike comes as Egypt reported a complete halt in its natural gas imports, dropping from a daily intake of 800 million cubic feet. Egypt, a crucial supplier of liquefied natural gas (LNG) to Europe, has been grappling with a decline in domestic natural gas production, exacerbated by daily blackouts as soaring temperatures drive up demand.
A critical juncture was reached in June 2022 when the European Commission, in collaboration with Israel and Egypt, established an agreement to supply Israeli gas to the EU via Egypt's LNG export infrastructure. However, the recent conflict between Israel and Hamas has disrupted this supply chain. Israel suspended production from its Tamar gas field, which previously supplied gas to Egypt, jeopardizing its ability to meet both domestic and export demands.
The ongoing Israel-Hamas conflict has played a significant role in the escalating European gas prices. While Egypt's gas exports to Europe constitute a relatively small portion of the continent's overall supply, European gas inventories currently remain near full capacity, mitigating the immediate impact on demand. Nonetheless, the long-term outlook suggests that prices may continue to rise if Israel's capacity to deliver natural gas to global markets remains compromised.
Before the closure of the Tamar gas field, Israeli gas production had surged to 12.3 billion cubic meters in the first half of 2023, with the nation poised for record production by year-end.
The situation underscores the intricate interplay between geopolitical conflicts and energy markets, with European consumers bracing for the potential consequences of an uncertain supply chain in the months ahead.