Missiles and drones are flying in the Red Sea, disrupting one of the world\u2019s key trade arteries and a chokepoint for energy shipments headed for Europe. Attacks by Yemen\u2019s Houthi rebels over Israel\u2019s war with Hamas are posing a new threat to the future of energy supplies to the 27-country European Union, which relies on imported natural gas to power factories, generate electricity and heat homes.<\/p>\n
Tankers carrying liquefied natural gas (LNG) \u2013 which is supercooled to travel by ship instead of pipeline \u2013 routinely pass through the Red Sea, and several shipments to Italy already have been cancelled. It\u2019s causing anxiety, especially as Europe still is grappling with the fallout from an energy crisis after Russia largely cut off natural gas to the continent over the invasion of Ukraine.<\/p>\n
Here are key things to know about the threat to Europe\u2019s energy supplies from conflict in the Middle East:<\/strong><\/p>\n WHAT IS GOING ON WITH RED SEA SHIPPING? <\/strong><\/p>\n The Iranian-backed Houthis have been firing drones and missiles at ships that pass by territory they control near the narrow Bab al-Mandab Strait at the southern end of the Red Sea. The Houthis say they are striking Israel-bound ships to support the Hamas militant group in its war with Israel, although other ships have been targeted as well. In response, the US and the UK have been attacking Houthi launch sites in Yemen since mid-January.<\/p>\n Security concerns have led shipping and some energy companies to reroute vessels around the southern tip of Africa instead of through the Suez Canal at the northern end of the Red Sea. That is lengthening the journey to Europe from suppliers in the Middle East, like Qatar, by a week or more and raising costs. Around 70 per cent of LNG shipments from Qatar that were headed for Italy\u2019s major terminal on the Adriatic Sea were cancelled in January. Last year, Qatar supplied 40 per cent of Italy\u2019s LNG.<\/p>\n WHAT IS LNG AND WHY IS IT IMPORTANT?<\/strong><\/p>\n Cooling natural gas to minus 162 degrees C (minus 260 degrees F) changes it into a liquid and reduces its volume by 600 times so it can be stored and shipped aboard specially designed vessels. Upon arrival, it\u2019s reheated into gas and transported by pipeline to distribution companies, industrial consumers and power plants.<\/p>\n Europe relied for decades on gas transported through pipelines from Russia. That came to an abrupt end after Russia invaded Ukraine and cut off most of its supply. LNG became a lifeline, with the German government, for example, hastily lining up floating import terminals on its northern coast.<\/p>\n Last year, 12.9 per cent of Europe\u2019s LNG went through the Red Sea from suppliers in the Middle East, mainly Qatar. That means \u201can extended shut-in of the Red Sea route from the Middle East poses a supply risk to Europe,\u201d said Kaushal Ramesh, vice president at Rystad Energy.<\/p>\n WHAT\u2019S THE IMPACT ON SUPPLIES AND PRICES? <\/strong><\/p>\n So far, there\u2019s been little to no impact on natural gas prices. In fact, spot prices for natural gas have fallen since the Houthi attacks began, from around 45 Euros (USD 48.38) per megawatt hour before the start of the Israel-Hamas war to 28.37 Euros Tuesday. Europe is getting a break because demand for natural gas is weak amid a sluggish economy. Slow growth in China also has reduced competition. And LNG shipments from the US don\u2019t have to go through the Red Sea.<\/p>\n Meanwhile, pipeline gas is still flowing from Norway and Azerbaijan, and Europe is buying some LNG from Russia despite sanctions. A key factor has been Europe\u2019s efforts to fill underground storage with gas ahead of winter: Storage is over 70 per cent full with most of the heating season over.<\/p>\n That means \u201cthe price impact will be delayed until Europe\u2019s gas storage has been drawn down sufficiently,\u201d Rystad\u2019s Ramesh said. Things were different in 2022 when the war in Ukraine began. Russia\u2019s cutoff sent gas prices rising sharply, surging inflation to record highs and helping drive a cost-of-living crisis. European governments and companies raced to secure alternatives.<\/p>\n But now, Europe\u2019s gas market is \u201cwell supplied,\u201d said Simone Tagliapietra, an energy analyst at the Bruegel think tank in Brussels. Abundant storage means \u201ca very good buffer\u201d against any interruptions or delays in gas shipments.<\/p>\n WHAT COULD GO WRONG?<\/strong><\/p>\n There are fears the Israel-Hamas war could spread to other countries in the region, particularly Iran, and lead to disruption of shipping through the Strait of Hormuz at the end of the Persian Gulf. That\u2019s a key route not just for LNG but for oil, too. So far, Iran and the US, Israel\u2019s key ally, have indicated they want to avoid a wider war. But the invasion of Ukraine has shown that in the unsettled state of the world, unexpected things can happen.<\/p>\n \u201cThere is always a but,\u201d Tagliapietra said. \u201cThe risk is an escalation that affects the Strait of Hormuz.\u201d<\/p>\n HOW IMPORTANT IS US GAS TO EUROPE?<\/strong><\/p>\n US gas exports rose sharply after Russia invaded Ukraine in February 2022, and the Biden administration has celebrated deliveries to Europe and Asia as a key geopolitical weapon against Russian President Vladimir Putin. Since then, President Joe Biden has paused approving new proposals for LNG export terminals.<\/p>\n The pause would allow officials to study the impact of LNG projects on climate change, the US economy and national security, Energy Secretary Jennifer Granholm said. The action would not affect five terminals that are already approved and under construction, she said.<\/p>\n Industry association Eurogas called Biden\u2019s action \u201calarming\u201d and said US gas imports are \u201cset to play a crucial role for European energy security\u201d in case of possible shortfalls.<\/p>\n Analyst Tagliapeitra said, however, that with plenty of new export capacity already approved, Biden\u2019s decision would have \u201cno short-term or even medium-term impact on Europe.\u201d US LNG capacity has doubled since exports began in earnest less than a decade ago, and it\u2019s set to double again under already-approved projects.<\/p>\n The wisdom of investing more money in fossil fuel infrastructure is also being debated in Europe, which aims to cut greenhouse gas emissions by 55 per cent compared to 1990 levels by 2030. Europe\u2019s gas demand is expected to fall 8 per cent over 2022-2026 as renewable energy like solar and wind power is scaled up.<\/p>\n \u201cExpanding LNG infrastructure in the USA and in the EU is a high economic risk that will very likely end up as stranded assets,\u201d said Claudia Kemfert, an economic expert at the German Institute of Economic Research and professor at Leuphana University.<\/p>\n","protected":false},"excerpt":{"rendered":" Missiles and drones are flying in the Red Sea, disrupting one of the world\u2019s key trade arteries and a chokepoint\u2026<\/p>\n","protected":false},"author":28,"featured_media":30442,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[186],"tags":[5214,5146,8593,998,4640,1380,773,535,1418,9769,536,3513,5215,9770,771],"class_list":["post-30441","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-world","tag-attack-on-container-ships","tag-bab-el-mandeb-strait","tag-energy-crisis","tag-europe","tag-fossil-fuels","tag-gaza","tag-houthi-rebels","tag-iran","tag-israel-hamas-war","tag-lng","tag-palestine","tag-red-sea","tag-suez-canal","tag-supply-chain-disruption","tag-yemen"],"reading_time":"6 min read","_links":{"self":[{"href":"https:\/\/www.businessupturn.com\/usa\/wp-json\/wp\/v2\/posts\/30441","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.businessupturn.com\/usa\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.businessupturn.com\/usa\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.businessupturn.com\/usa\/wp-json\/wp\/v2\/users\/28"}],"replies":[{"embeddable":true,"href":"https:\/\/www.businessupturn.com\/usa\/wp-json\/wp\/v2\/comments?post=30441"}],"version-history":[{"count":0,"href":"https:\/\/www.businessupturn.com\/usa\/wp-json\/wp\/v2\/posts\/30441\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.businessupturn.com\/usa\/wp-json\/wp\/v2\/media\/30442"}],"wp:attachment":[{"href":"https:\/\/www.businessupturn.com\/usa\/wp-json\/wp\/v2\/media?parent=30441"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.businessupturn.com\/usa\/wp-json\/wp\/v2\/categories?post=30441"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.businessupturn.com\/usa\/wp-json\/wp\/v2\/tags?post=30441"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}