European natural gas prices could more than double if shipping through the Strait of Hormuz is halted for one month, according to Goldman Sachs. Benchmarks in Europe and Asia have hardly priced in risk premiums associated with Iran, Goldman analysts, including Daan Struyven, said in a note dated March 1.
Approximately one-fifth of the world’s liquefied natural gas, primarily from Qatar, transits through this critical choke point. A month-long disruption could see European gas prices and spot Asian liquefied natural gas surge by 130 per cent, reaching $US25 per million British thermal units, the analysts stated.
Goldman Sachs analysts noted that a more extended disruption of natural gas supply transit through the Strait of Hormuz, lasting more than two months, would likely elevate European natural gas prices above €100 per megawatt-hour ($US35 per million British thermal units). This increase would be necessary to trigger more significant global gas demand destruction and bring the market back into balance.
However, the impact on US natural gas prices would likely be limited, according to Goldman Sachs. The United States is a substantial net exporter of liquefied natural gas, and liquefaction plants are generally operating at full capacity, offering minimal opportunity to increase shipments to offset any potential disruptions elsewhere.
