How many wake up calls does Europe need?

The US-Israeli led war in Iran and the prolonged disruption in the Strait of Hormuz is once again exposing Europe’s vulnerability to global energy shocks; raising urgent questions about gas storage, LNG dependency and whether governments have learned anything from previous crises.

In this episode of PluggedIn, Montel’s Richard speaks with Henning Gloystein from Eurasia Group and Saul Kavonic from MST Marquee about the escalating conflict and growing risks facing energy markets and global supply chains.

Could shipping flows resume within weeks, or are market participants underestimating the possibility of years of disruption? The discussion explores fuel shortages, LNG price risks, Europe’s storage dilemma, China’s strategic positioning, and why many analysts believe the global economy is only beginning to feel the effects of the crisis.

With competing forecasts and mounting geopolitical tensions, the episode examines what comes next for energy markets, and whether the world is prepared for a prolonged supply shock.

#StraitOfHormuz #LNG #NaturalGas #OilMarkets #EnergyCrisis #GlobalEnergy #Geopolitics #EnergySecurity #GasMarkets #TTF #EnergyTransition #Iran #MiddleEast #ShippingCrisis #EnergyPodcast #Montel #PluggedInPodcast #OilAndGas #EuropeEnergy #LNGMarkets

Host: Richard Sverrisson – Editor-in-Chief, Montel News

Guests:

Saul Kavonic, Head of Energy Research, MST Marquee

Henning Gloystein, Managing Director - Energy & Resources, Eurasia Group 

Editor: Alexandra Carlon

Producer: Alexandra Carlon

Transcript

Why Hormuz Suddenly Matters

SPEAKER_03 0:06

Hello listeners and welcome to Plugged In, the NG News podcast from Montel, where we bring you the latest news, issues, and changes happening in the energy sector. As the conflict in Iran drags on and the Strait of Ammuz remains closed, analysts remain divided over how long the disruption could last and the implications for global energy markets. Some believe mounting economic pressure could force some form of agreement by early July, allowing shipping flows to gradually resume over the summer. Others warn the crisis could persist well into 2027, with oil and gas markets facing years of tighter supply, damaged infrastructure, and structurally higher prices. In this episode, we explore just how vulnerable global gas, LNG, and oil markets remain as the Strait of Homoose crisis intensifies. And why many analysts believe traders are still underestimating the scale of the risk. Joining me to set the scene for this week's episode is Luca Dimitrov, who's a Southern and Central Eastern European correspondent for Montel News.

SPEAKER_01 1:13

A warm welcome to you, Luca. Thank you for having me, Richard. Glad to be here on your podcast. Excellent. So we're talking about the Iran war.

SPEAKER_03 1:22

Where are we now exactly with the Iran conflict, Luca?

SPEAKER_01 1:25

We're in a very unfortunate situation with a standoff between US and Iran. And for gas and oil traders, and the market itself is a territory in geopolitical sphere where the two main actors, US and Israel, have not made their mind up yet whether they're going to continue confronting Iran and bombing it, or whether they will be pushed by Iran neighbors to continue peace negotiations. Market is in a very animated situation. Gas and oil traders are still pricing this huge volatility and uncertainty given the elevated gas prices on the Dutch TTF hub in Asia as well. It's a very uncertain territory in one word, with elevated prices around 50-52 euros per megawatt hours. High in this end of March, Richard. So I think there are quite a lot of uncertainty, and some of the European trading desks have waken up and they realize that summer is ahead of us, and there are different supply and uh demand dynamics

Europe’s Gas Prices And Storage Angst

SPEAKER_01 2:39

across Europe and Asia. Uh, but we can talk uh talk about it a bit later as well.

SPEAKER_03 2:45

Absolutely. And um, you know, you know, we're nowhere near the level seen in 2022, but still they are very elevated, these prices, as you say, Luca. But this week in particular, why why have markets been paying very closely attention to what's happening in the Gulf?

SPEAKER_01 2:59

Well, we had the meeting between President Trump and Qi in Beijing, and currently we have the meeting between uh Russian President Putin and China, and these uh geopolitical talks are quite essential for the energy markets. One, whether China will continue to consume uh huge amounts of gas, where to buy them, Russia will ramp up uh gas uh deliveries and LNG to China, whether USA will step in and deliver more LNG to China. We don't know yet these details, but they are important for Europe as it will need to refill its gas storages. Whether the ongoing LNG buying from Russia will continue and at what rate, whether Asia and Europe will compete for US LNG cargo, at what price. So the questions from these geopolitical meetings is what's next for Europe? And also there is uh this debate from the energy regulator, Acer, about the storage levels. Uh there is a talk about government subsidies in Germany, Italy to support gas injections. So there is a bit of politics, economics, and geopolitics involved this week that kind of keep uh gas traders uh on their highest alert in terms of prices and and deliveries.

SPEAKER_03 4:23

And and that's very interesting, Luca. I think what what are you hearing in terms of the duration of the conflict? What are you analysts and traders telling you what they expect?

SPEAKER_01 4:32

To be fair, Richard, I haven't talked to a single trader that uh knows what's gonna happen tomorrow. Most of them are giving me a very short-term outlook. Major gas traders in Central Eastern Europe, even in Southern Europe, Spain, Italy, and Greece included, they're forecasting the end of the conflict by end of May, which is almost 10 days ahead. Uh with first major deliveries from hormose in August. And like this is the best press scenario, but it's a very huge risk to forecast uh what's in the mind of Trump and Benjamin Itanyaho in terms of uh reopening hormose. Most of the gas traders are hedging risk, but there is also uh Asia Asia gas demand destruction, which might change in a few weeks when the heat wave, the forecast for summer heatwave is coming into Asia. And then you will see uh might be uh uh a bit more elevated prices in Europe, uh in Asia as well.

SPEAKER_03 5:36

So Yeah, it all hinges on when the Straits of Amuse will open and whether this this uh this terrible conflict will

Why Analysts Misread The Shutdown

SPEAKER_03 5:44

end. So Luca, thank you very much indeed for setting the scene for us uh this week. You're welcome, Richard. So it's it's my great pleasure to welcome Henning Gloystein, director at Eurasia, back onto the pod. Yeah, a warm welcome, Henning. Thanks, great to be back. We were talking about two months ago, weren't we maybe a little bit less than two months ago. Are you at all surprised about how events have sort of turned out?

SPEAKER_02 6:09

I think anybody who hasn't been at some point in some form surprised about how things things developed in the war in Iran would not be quite honest. So yeah, of course, we we were surprised by quite a few of the events. The intensity, the on and off ramps, the negotiations that happen and they don't happen, what's happening in Strait of Hormuz and what's not happening, it's it's it's a real roller coaster. And unfair uh unfortunately it's not a very healthy one for the world economy. And that's I think, you know, we can uh discuss a lot about impacts on what Trump will do, but the the the main problem is uh until this conflict is resolved, the the world economy will suffer, and we unfortunately don't see an easy way to resolve this conflict at the moment.

SPEAKER_03 6:49

Aaron Powell But to me it's it's quite staggering. He he's presented the Iranians with one of the biggest gifts ever, which is the s the closing of the Strait of Moose that that no one in the White House could ever have foreseen that this could have happened is is is is sort of mind-blowing, really.

SPEAKER_02 7:04

Yeah. Talk about things actually that were that we were surprised by. So wonderful, we got that right. But then we got something really wrong. And um so the issue here is we we'd heard from from various sources in the US that uh the the the Pentagon and ma various parts of the military had advised uh Donald Trump, said, like, uh, Mr. President, if you're gonna attack Iran, you better put assets into the straight of foremost because they might attempt to shut it down. And based on that information, we then said that there might be limited strikes and uh the US would go to the Strait of Foremas would so in some form stay open, but for some reason that advice wasn't adhered to. And here we are. Um so uh for all our amazing forecasting, we got that part wrong, and that means the impact that the Strait of Formers now has been shut for for something like ten weeks coming on now is is really quite quite a damage to the world economy.

SPEAKER_03 8:13

Why did I mean most analysts as well, I mean not not just not yourselves, but several expected this to be short-lived and that the st the straits would open. Why do they get this so wrong?

SPEAKER_02 8:23

Yeah, it's uh it's uh it's a good question. Some source searching uh must be done now once this is over. I mean, in the moment we're all in emergency management and trying to analyze what comes next. But once we're through this, it's like, what went wrong in the analysis? I I reckon, as I said, there was an initial expectation that the US would make sure that the Iranians can't shut the Strait of Formas by putting naval assets into the Strait of Formas, which they didn't. Then the a lot of analysts also forecast that if Iran was attacked again by the US and Israel, that these attacks would be limited like they were in the 12-day war in 2025, and that then because of that also Iran's response function would be limited as well. But then what happened is that the US, actually, in particular Israel, took out almost the entire leadership of Iran. And and then it turned out that Iran was actually uh capable, despite the loss of its leadership, to retaliate in a very targeted fashion, because th they had this policy of of preparing. Like if for leadership one, two, and three are killed, then number four, five, and six do X, Y, in Z. And that is what's happened. So everything was more severe and than than we thought it would be, and and here we are. Because of the severity of it, the conflict is unresolved. And then on top of that, of course, in Iran, although so many leaders have been killed, the actual structural regime, as the West media would call it, is still in place.

SPEAKER_03 9:40

And seems quite entrenched. Absolutely. Yeah, yeah. No, it's giving any way, yeah, absolutely. And where they as misels are, who knows?

SPEAKER_02 9:46

But uh, for them, as we've said many times in the media uh also says, like for Iran's leadership, survival is victory. So and for the US, they can achieve that by without going much deeper. So the question is now whether whether Donald Trump finds a way at uh for an off-ramp that uh people talk about or whether he re-engages by resuming hostilities. But then we're really worried about uh not just we, I mean the NATO around the world, absolutely terrified what what will happen if there's a resumption of hostilities.

Best Case Reopening Timeline Explained

SPEAKER_03 10:15

What would you say was the best case scenario here?

SPEAKER_02 10:18

Right now? Okay, so if peace breaks out tomorrow, then there is, I mean, and this is the positive news of this, there are there are very large international naval assets in the wider Gulf of Oman and the Arabian Sea already in place. The Europeans have put a lot of ships in place, China has a naval contingent, India as well. So if there was an agreement to to cease hostilities that is semi-credible, an international naval group could move into the Strait of Hormons very fast. Make sure it's cleared for mines, and then allow for a resumption of shipping relatively quickly. With the shipping and naval sources we talk to, we reckon that that could happen then from the point where where a peace is somehow established five weeks. Maybe four. Why not faster? You do want to make sure that there's no mines.

SPEAKER_03 11:10

Exactly.

SPEAKER_02 11:11

The last thing you want to say, everything's open, then the chemical tank group goes over. Yeah, yeah. Or yeah, yeah, yeah. So that's a real risk. And uh somewhat only the United States doesn't really have strong uh naval mines uh minesweeping capabilities in the region. So you need other navies to do that. And then you have you have a congestion issue that means it's like a massive traffic jam. They don't just disappear even if new modes reopen after major accidents. So this thing would would take some time. So we think from the point of a credible solution to the conflict, five weeks, maybe four weeks at the very best, more realistically, eight to nine weeks. Which basically means this summer.

SPEAKER_03 11:50

Yeah. And that, you know, the way things have been fluctuating over the past two or three weeks, a credible piece seems a long way off. Yes. Yeah.

SPEAKER_02 12:00

So there's a few things, you know, until we get there, even with without a resumption of hostilities, there's some real risks here.

The Slow Crisis That Suddenly Breaks

SPEAKER_02 12:07

So at the moment, more ships are getting out of the Strait of Hormos than I think most people realize. So you read put out a note on Friday last week saying that we reckon probably, I don't know, between six and ten relatively big ships get through every day. Every day. Yeah. Um and I saw Lloyd's List has done something similar recently. So there's a little bit more coming out, which probably helps explain why some of the worst fears of jet fuel shortages, of um fertilizer shortages haven't quite yet happened. If you remember, there was a few weeks ago people were saying like June. And that that's not going to happen. But of course, it's not a permanent solution. This is like putting a band-aid on a giant wound cut. It's it's so the longer this uh goes on, at some point something will break. Um and this is what we think is the biggest risk at the moment, is that uh at the moment it seems like, well, you know, we're getting by, uh China's oil imports have gone down, uh and the LNG imports are at eight year lows, and Europe's somehow scraping by. Fine. Until we're not. Until somewhere something really derails.

SPEAKER_03 13:13

Um which could be what?

SPEAKER_02 13:14

For example, it could be uh a a major the the first images of mass diesel and petrol shortages in Europe. Or in the States. Or in the States, yeah. Electric is doing very low. And then the United States puts out export fuel export restrictions. If they do that, Europe would almost certainly have to follow suit almost immediately. And then other areas have to do that, and then suddenly the entire market freezes up. That would that's actually a very good uh example of what might happen. It could happen in in Singapore or something, uh in the bunker fuel market, some major shipments have to be cancelled and suddenly like you know, about a thousand containers aren't arriving west coast United States. Who knows? But this is the sort of crisis that we think it's happening. It's sort of sl getting like when you have uh the onset of a flu, it's getting worse steadily until at some point you realize I'm really sick. And I think this is what's happening with oil markets, and it will continue until this s is somehow resolved. Yeah.

SPEAKER_03 14:06

I mean we'll come back to that later.

Which Cargoes Still Get Through

SPEAKER_03 14:08

But in the the six to ten ships sending, uh what kind of ships ships are they? Are they dry bog? Are they oil? Are they LNG tankers? What what's your analysis?

SPEAKER_02 14:18

They're mostly uh chemicals of fertilizer tankers and LPG tankers. So because that's the most urgent for markets in South Asia. You need to get the fertilizer into the ground by June for the monsoon sowing season so that you can harvest by monsoon. So that's really quite urgent. And LPG is a cooking fuel across South Asia, it's in very short supply, so you know there's literally millions of households who are eating raw coal food as well. So those two are priority. Energy tankers are getting out, and there's probably paid. I don't know for sure, but uh the Qataris have some form of uh accord with Iran. Some of that's getting out. And then the Iranians are getting um crude oil tankers out, mostly to China because the US blockade isn't stopping those. And then there's a couple of uh container ships and dryball ships that sort of slip out as well. But the the the the majority of the ships that we're aware of that are going through, even without AAS satellite transponders, are chemical and L-Pegita.

Trump’s Signals And Zero Visibility

SPEAKER_03 15:14

Okay. That's very interesting. I mean, we've once on news reported on certainly on the LNG ones that have slipped through. You know, Trump he keeps threatening force, but also then delays escalation. We've seen it very recently here this week. Does that, you know, does that uncertainty, you know, what does that mean for for the energy markets or for gas and LNG in particular?

SPEAKER_02 15:32

Then we have zero visibility. I mean what happened over the last, whatever it was, 48 hours with uh Trump saying that he's called off an attack after you know the the GCC countries beg him not to attack. So that's I don't really know how to put this or how to, but this like re-de-escalate. It's like you're you're escalating saying I've called off an attack. It's like, well, but we okay, nobody was really aware that the US was about to attack. So he's saying we were about to attack, but then I was pressured not to attack, but it's left hanging in there, saying, but maybe we will attack very soon. So basically he's uh we he's telling the world that that he's not gonna tell them what they're gonna do. I fear that it's because the US government doesn't really know what to do. Because they're not happy with what they've offered Iran and what Iran is offering in return, so there's very little Vend Iran overlap at the moment. And but at the same time the US is feeling that without a major resumption of hostilities, they can't pressure Iran into anything else. And so what are the alternatives for for the US? Would it try and be to try and decapitate, as they call, a kill more leaders in Iran and hope that that takes out the more radical ones? Would it be taking some of the islands in or near the Strait of Hormuz, or Kag Island, the uh the the the the famous oil terminal in Iran? But all of that, of course, risks casualties quite severely. It also risks Iran retaliating. We know that they've retaliated very ti in in a very targeted manner, and we know that they can use much stronger missiles if they want to on existing infrastructure that hasn't been hit yet. That would mean then oil and gas and whatever else prices could go much faster.

SPEAKER_03 17:11

Is that the worst case scenario? I mean, I'm also hearing some you know people saying this could be shut the whole the whole year. I mean, it's not permanently shut. I mean things are slipping through, of course, but in that this could drag on beyond the summer. Is there's that's that's so obviously the worst case is that it drags on for the whole of the year or and beyond. But uh, is that realistic or no?

SPEAKER_02 17:33

I think it is a realistic risk. I don't know what our latest uh probabilities are, but I I think they're at least uh roughly a third that uh would come out of this northern hemisphere summer, so let's say uh September, and it's still not probably resumed because uh neither side has given way. It's very possible, yes. However, it is still a base case that at some point, so I think it's uh very close uh almost like a coin flip 5545, I think here uh less um probability to go to say that some form of an agreement will be reached by July first, but with a very low prod um conviction rate. Why would we say that? The economic pressures on both sides are really high now. Um the blockade is hurting Iran, and um the economic situation in the world and the US is getting worse, bond markets could wobble, the dollar could slide, the SCP-500 could take ahead, the market suddenly changes its mind. I mean, there's also things that could happen during the soccer world cup in North America. It's there's uh there's a lot of things that are uh worth keeping in mind at the moment that uh that could flip market sentiment. And we know that Donald Trump is sensitive to that. So uh we reckon that sort of the pressure point economically for for neither side is high enough yet, and that's why we haven't achieved anything yet. But by July, we think the pressure point will be there.

SPEAKER_03 18:52

And and there's there must be pressure building from all of the allies from all, you know, from Southeast Asia. You mentioned the cooking for you know shortages, jet fuel seems to ease a little bit, but that could really kick in. And obviously when it when it hits the American motorist hard, that's probably when, you know, maybe things will accelerate. But you know, so but but markets seem to be not pricing in this risk, uh Henning.

Markets Acting Like The US Is Safe

SPEAKER_03 19:18

What what what's why why is there as there seems to be a bit of a disconnect here?

SPEAKER_02 19:21

There's definitely a disconnect, especially equity markets. I mean, I'm not an equity market uh expert. But it does seem that if you look at global equity markets, they're so US dominated now uh that there's a sense in equity markets that the US is shielded from this. And that this is a problem for for Indo-Pacific, for emerging markets for those Europeans who are weak anyway. And in some ways that's true. I mean, four and a half dollars per gallon of gasoline in New York is way cheaper than it is anywhere in Europe. I mean, that's uh I think the UK price would be something like eleven or twelve dollars a gallon. So it they are relatively shielded, and there I don't think there'll be real shortages in the US. So I I reckon that's a little bit why why equity markets are behaving the way they are, but also i they they clearly still think or have and have been thinking that this conflict would be over quite fast. So if, as you mentioned earlier, uh if we find ourselves at the end of the summer holiday season in a little nemescreen and we're looking at the winter season and this is still not really resolved, then I do think that equity markets would take it. And whether it's equity markets or the dollar or the bond markets, those three are pain points for the United States. I don't think he cares much if the Europeans or the Brits call him up and say, Oh, we're running low on fuel. They say, Well, that's your problem, you can buy America. Yeah, exactly.

SPEAKER_03 20:41

So, yeah, well, yeah, I mean, uh yeah. And buy more of our LNG. You know, that you that's an easy way to fill your gas storage, uh, Europeans, yeah. Yeah, yeah.

SPEAKER_02 20:49

And what I find amazing though is uh in in Asia Pacific, I mean, it's it's really uh uh quite an astonishing little thing that's in motion, it's actually not little at all. China is the world's biggest import of crude oil and natural gas, and they have probably at this stage been less impacted as a society, as an economy by this crisis than the United States have, although they're the world's biggest producer of oil and natural gas. And that's a combination of electrification and of course stockpile and haul and hoarding, which has allowed them to reduce consumption on imports quite significantly without drastically reducing consumption at this stage. So it's it's remarkable how China's coming out of this. Which is also a reason or one of the reasons that helps explain why China's been so quiet about this. Yeah, can I say this one out?

SPEAKER_03 21:32

And and they're probably burning more coal as well. But yeah, I mean that was gonna be my next question, really, Henning.

China’s Advantage From Electrification

SPEAKER_03 21:38

I mean, in terms of China, you know, it's it's it's quietly becoming one of the most important players in the story. Why why is that? I mean, we've had we've had uh, you know, Trump visiting Beijing. Now Putin is there as we speak. You know, what what what's going on? What's what's what's China thinking here?

SPEAKER_02 21:54

I mean, uh I can't be too sure, but House view is a little bit China is. Willing and able to sit this one out. They are watching the United States lose credibility with their allies, with their adversaries, the mighty US air force couldn't subdue Iran. I mean the US t you know, P. Pete Hexeth, the Defense Secretary or Savior War, he calls himself, says this has been the most, you know, the the the the biggest and most successful air campaign in history. Well um but the Strait of Wongs was open before this conflict and it's closed now. Regime is in place. So it's it's a huge loss of credibility. There's the reports that the US is running low on stockpiles on missiles and ammunition. That, of course, from a Chinese point of view is is positive to be aware of and to know. The Europeans are suffering economically, that they they're competitors of China and seen as a broader the same bucket as the West as the United States is. So some people in Europe think like, well, we're we're not the Americans, so we can do a deal with China. But our view is that that is not how China sees Europe. They see us as a weaker part of the same box that the United States is sitting in. And and China is gaining economic and political, geopolitical and diplomatic traction. They initially had a fuel export restriction um at the start of this conflict. They've lifted that, at least partially. They've helped supply fuel to Australia, to parts of ASEAN, which is clearly, I mean, there's a political messaging here. It's like we are hit by this crisis just like everybody else, but we are helping our friends. And the United States is not. So it's a stand back and let the US play this one out as badly as they are. Take a long-term benefit. And of course, their energy and and resource policy has been absolutely vindicated. At Eurasia Group, one of our top risks for 2026 was that China is going full-down electrification of everything, while the US is wanting to build um you know hydrocarbons into long-term supply chains, and they want to bought to bully other trade partners and into doing that as well. China's path is the one that's winning. Electrification works, you know, raising domestic supply, even in the short-term coal, and that it does work. And the fact that they build have most of their supply chains at home, critical minerals, and and that they've hoarded all the stuff that they need to import, it's worked and it's being noticed.

SPEAKER_03 24:16

You know, could could China emerge as as a as a key broker then between Iran and the US, or does it just want to stay out?

SPEAKER_02 24:22

I reckon China could emerge as a broker, but I don't think it wants to and it will. And uh it looks a little bit that China doesn't want to get involved in the conflict in the Middle East right now. They don't want to be taken to be seen to be taking too much of the side of Iran, because of course Iran is also playing Nazi. I mean I know that a lot of sympathies uh are a little bit with the underdog and the Iran. You know, I think it's because they didn't initiate this attack, but they did close down straight warmers. And they did lash out at uninvolved nations. And at their own people. And that'd be absolutely. They have mainly gone down to houses as their own people. And uh so it's uh we don't think and I don't think Iran uh be China wants to be seen too closely aligned with Iran here. I mean, Iran and China are ideologically and politically like universes apart. It's so it it was a convenient source of supply, especially oil. But uh I don't think China wants to get too deeply involved here, especially not during a conflict. It's possible that in a post-conflict scenario where the US might emerge weakened, that China picks up the pieces and says, like, hey, Pakistan, we've seen here Pakistan is currently the broker, uh potential broker between Iran and the United States. It used to be Oman, and now it's Pakistan. And of course, Pakistan has very close ties with China. So backdoor diplomacy there is happening. But overall, um we don't think China wants to get too deeply involved in Iran and just like it hasn't in Ukraine. Yeah, absolutely stayed away.

SPEAKER_03 25:52

What does it say? I mean, what does you know what does the

Permanent Shifts In Fuel Contracting

SPEAKER_03 25:55

future hold here for you know the export or production and export of fossil fuels from from the Gulf states? I mean, you know, I think you it it raises huge question marks around the the security of supply from that region. For Europe in particular.

SPEAKER_02 26:10

I mean, uh there are going to be fundamental changes that uh are irreversible without a doubt, even if everything returns to normal next week. Which you want. So For example, Henning, what's I mean, take for example, um all the uh uh contracts that have fallen under force majeure already. There's there's dozens of them, and only a few of them got reported when Catal did that some force majeure. Basically, when uh the recipient of the force majeure basically is then free to sign new contracts. And they will, because they need the gas. And if there was a force majeure on some chemicals or RPG and help, whatever, cruel, it's the same situation. So people the the buyer will seek new contracts. Uh and the longer this takes, the more new contracts they will uh s sign up to that will be not from the Middle East, because you can't get it from the Middle East. So there will be already a permanent reduction of Middle East and oil and gas supply to Europe and to parts of Asia because of this crisis already. The other part, of course, is uh decarbonization. It's like we this is and is being said so often in the moment, but it's it's because it's true. If for any importing nation, whether you're in Asia or in Europe, this is the second geopolitically triggered fuel supply crunch in five years. We can't have another one in the next couple of years. It'll break us. Um and whether us is in Japan or in Germany, it doesn't really matter. And that means you this electrification of China has showed the way how to do this. They're gonna look at this in India, in Germany, in Japan. I mean, in Japan they're trying to accelerate the return of every single nuclear power station that's been mop-balled since Fukushima. In Germany, the industrial power price cap is linked to reinvestment into clean domestic um power infrastructure. In in the UK, uh we're seeing gas being taken out of the uh the power marginal pricing system and uh long-term PPAs for existing serum carbon assets, which basically tells you there's an incentive to invest into uh more clean assets there. And so every country will find its own solutions. India will probably try and replicate what China does, but coal use um and avoid LNG imports in future. I mean, they they are so screwed over by this because there's a war in the Middle East. Before that, there was a war in Ukraine, and there was Fukushima in Japan, and then there's a coal snapping China. These are all things that are driving fuel costs for India for the Ruth that have nothing to do with India. And they have no control over it, Teosetti. Yeah. So the uh and it we already saw this in 2022, during the Ukraine gas crisis in Europe. You can't return to a state as Kwanti and this disruption is so big. Uh new agreements, deals, and investments are made that mean that even if the Middle East returns to a very peaceful and stable uh situation, let's say by the end of this year, a lot of things will change. That's not to say that I I think the Gulf region will sort of fall in on each other. I mean, uh there's a lot of substance there that can recover. They do have a lot of cheap and competitive oil and gas and chemical and aluminium supplies that the world wants to buy. So I think they'll recover, but it won't be quite on the scale as they were before.

SPEAKER_03 29:15

Yeah. And I think certainly Europe has set that ball in motion. Uh there is an acceleration of renewables build-out. If only then Europe can sold out little problems like solve problems like, you know, oversupply, negative prices, curtailments and uh cannibalization cannibalization and and congestion. Those are the three, those are the areas which that need to be solved before we can really go full steam ahead.

SPEAKER_02 29:37

That's the the nitty-gritty of the electricity markets. So that uh we're talking about geopolitics and uh and uh fundamental ruptures, but actually in the end we need to resolve electric negative electricity prices. Absolutely, Henning.

SPEAKER_03 29:50

But it is true. Yeah, it's it's very true. On that note, Henning, thank you very much for being a guest on the Pluggedin' Podcast. That

LNG Reality Check And Stock Draw

SPEAKER_03 29:56

was great. Yeah. And now we cross to Saul Kamanich, head of energy research at MST marquee, to weigh in on his predictions for the reopening of the Strait of Hamoose and what that could mean for global energy and oil supply disruptions. A warm welcome, Saul, and welcome back to the pod. Always a pleasure. So, so Saul, I mean, we we were talking earlier, I was talking with with Henning about scenarios for opening the the Strait of Hamoose. What what's what's your view here? How how what how likely is that to be open before the summer, even?

SPEAKER_00 30:26

Well, Henning is, in my opinion, one of the top analysts who cover oil and gas markets uh in the world and certainly in Europe. So at risk of um disagreeing with Henning, I and I I suspect Henning might be too optimistic. Now, if I could just touch on what the scenarios actually look like on our modelling for the Strait of Home was opening. And if we start with the best case scenario, so let's imagine that some miraculous deal is secured tomorrow and the strait is fully opened up, unencumbered with no further threats, and the mines that are in place, etc., just don't pose an issue. Now, even in that world, we're looking at a three to six month timeframe to see a full normalization of flows. And several things are driving that, but a lot of it is the shipping logistics. We need to actually get any empty tankers back into the strait, ready to pick up volumes out of the current stocks, which will be needed to make room before you can then restart production at a lot of shut-in facilities. That's a major logistics exercise. On top of that, there's going to be potentially months longer to repair some of the damaged infrastructure that's taken place, and particularly some damaged reservoirs. We're not sure, for example, if all the Iraqi shut-in fields will be able to fully recover given the damage that that could have done to the reservoir itself. And when you put that all together, I think you're looking at a three to six-month window again in the best case scenario. And that's before factoring in that the sort of Damocles will be hanging over the strait on a forward-looking basis where you have an emboldened Iranian regime, which is increasingly paranoid and hard line, which will look to threaten the strait for every small little political thing they want going forward. Now, that picture, therefore, has some implications. Now, what we must remember is to date, we're looking at close to a billion barrels of implied stock draw since the beginning of the war. And that could increase to one and a half million barrels, again, in that best case scenario I've outlined. So, again, in the best case scenario, even once you have a normalization of flows, you still then need to replenish the stocks that have been lost, this record stock loss, which could take one or two years and add a few percent to oil demand through that period. And on top of that, we're gonna see policy all around the world to try and increase stocks to even higher levels than prior to the war, precisely so that countries like Australia and many across the world don't end up in such a vulnerable situation again. So it's gonna put upward pressure on demand as well. And that, I think, actually suggests that we're going to see significant tightness in the market that goes well into 2027 and even into 2028. And this is the best case scenario. Now, let me just run you through what I think is a more realistic case scenario. And that is that we see a slow and partial opening up of the strait. So whether that's, for example, by a convoy system under still the threat of some kind of intermittent attacks, or whether it's Iran retaining control and cutting bilateral deals here and there, but not with everybody. And in that world, we're looking at an additional three months or so before everything gets back to normalcy and perhaps still never gets to free war levels. We might only end up 80, 90% at pre-war levels. And in that world, we see an implied stock draw of over three billion barrels. Wow.

SPEAKER_03 34:17

That's that's that's not quite what Henning was saying, but I think it's fine that you uh you esteemed analysts disagree on this area. But if if we you're talking about oil, so can I bring you back into gas markets? What are the implications for gas and for energy production and export in the Gulf

Qatar LNG Vulnerabilities And Cold Boxes

SPEAKER_03 34:33

region?

SPEAKER_00 34:34

Certainly. And I must say, I think it's really welcome to have those kind of different perspectives and modeling on this. I think you know, being able to contrast that is what be able to tease out a lot of the insights. So that's the oil piece. And the reason that oil piece is important is again, so much of the LNG contracts, particularly in Asia, are still linked to oil. And in particular, a lot of them are still linked to JCC, right? And JCC tends to be more linked to those grades coming out of the Middle East.

SPEAKER_03 35:07

Could you just explain what JCC is? Sorry, sort of.

SPEAKER_00 35:10

JC sneeze the it's the the the oil marker, Japanese crude cocktail, which is kind of the average landed price of crude that goes into Japan. There's a huge lag impact on it, you so when oil goes up today, you don't really see it flow through into JCC and ultimately into LNG contracts until a few months later. But those crude grades are tending to potentially trade at a premium uh even to Brent. And so that's going to flow through on that as well because it is those grades that typically would come out of the Middle East. And because there's so much flex in a number of the contracts that go into Asia, a higher oil environment is important because it also ends up providing a flaw on where oil on where LNG prices can go. Because ultimately, if LNG spot prices uh move out of the range of contract prices, people start switching under the flexibility of their contracts to optimize that. So let's go to LNG. So we've got about 80 million tons per annum of capacity, roughly, which is offline as well through the strait. Now, there's a lot of parallels between what's happening now and what's happening in 2022. Right. But I want to highlight on what the difference is. So in 2022, Russia turned off the equivalent of about 60 million tons per annum of gas into Europe. And as a result, was Europe had a number of demand management measures, but also sucked huge amounts of LNG out of the market, particularly taking it away from South Asia. But today, we're facing, I think, a much more acute risk than we saw in 2022. And the reason for that is, first of all, it's 80 million tons rather than 60 million tons. Second of all, is in 2022, all the easy levers around the world to reduce gas demand were pulled to deal with that shortage. And they're not available to be pulled again. And so now you much more quickly end up in demand destruction territory and forced demand destruction rather than being able to be more focused on efficiency gains. And then lastly, is, and perhaps most importantly, this time around, Asia is directly affected. So Asia was a secondary impact from the 2022 war with Ukraine. But now this, these are LNG volumes which directly went into Asia. Now, thankfully, the timing of this disruption has happened just as we're seeing a ramp up of new LNG out of the US. And we're in the soft shoulder season, right? Unfortunately, we entered this and Germany was near record low gas stocks again, heading into a major supply disruption due to a war. You know, and this is where those of us in Asia just kind of look gobsmacked at Europe and they managed to do this every single time. But, you know, I'll I'll leave that to the Europeans to try and explain that. But, you know, so we've got that. Now, because of that lull shoulder season right now, and because there's still a wide consensus expectation that the war and ultimately the Strait of Humores will open, the war will end and the strait will open reasonably soon. LNG prices are not they're up. They're almost double where they were. And the forward curve is still double digits through 2028 now, but it's still well, well below the highs that were seen in the week of the Ukraine war. Pressure, though, is only going to grow, particularly if the strait remains close for the next few months, which I think is close to inevitable to at least a partial degree. As you head into the northern hemisphere, summer season is gonna see a pickup in demand in Europe and Asia. We're gonna have to see Europe at some point look to rebuild its stocks ahead of winter. And I think you're gonna start to see more pressure, particularly as you see Northeast Asian LNG buyers compete more directly with European buyers, potentially government-backed on both sides. And that could see upper pressure on LNG pricing over the course of the next three to six months. Again, even in the better case scenarios regarding straight information.

SPEAKER_03 39:06

So if with if we look at European gas price at the moment, that's you know, for the front months on the forward curve, they're around 50 euros per megawatt hour on the TTF, the Dutch TTF. You know, is the market pricing this huge amount of risk that that you're talking about here?

SPEAKER_00 39:22

So it doesn't seem to be. I'd agree. I don't think the market on both the oil side and the gas side are pricing in the scenarios here. I think they're pricing in best case scenario outcomes for the most part, and not really factoring in both the amount of time it will take for flows to normalize, even in that best case scenario, let alone worst-case scenarios regarding how the war plays out. You know, and we haven't even covered the doomsday scenarios where a war kind of more kinetic action actually takes place and more infrastructure is directly hit and damaged, which will then knock it out for years. You know, and that brings you to that on the LNG side of the equation, we've obviously though though those Iranian attacks on Razlafan in Qatar earlier on in the war, you know, those were kind of random attacks. So for those of folks who haven't seen an LNG plant, they're massive, right? They're these huge structures of steel, several basketball courts in size. What those two missiles hit when they hit the two trains was the one quite relatively small piece of kit on both trains called the cold box. This is the key heat exchanger essentially cools the gas down to liquefied natural gas. That's the one piece of kit on an LNG train that is not easy to replace, which is not available off the shelf, which has multiple year lead times. And so those were deliberately targeted, which it knocks out 14 million tons per hour of Qatari capacity for three to five years. And that's why Qatar was able to come out so quickly. This wasn't optics. This was they realized the what the the most difficult piece of kit to replace is now being knocked out. It's likely there's been some residual damage on some of the trains, not those two trains, but neighboring trains there as well. And this is really high precision kit, which means it will take longer to restart. So you put, you know, the market can manage 14 million tons per annum knocked out for three years, given the increased supply that's coming out of the US. But if we saw war resume and potentially a few more trains start to be knocked out, then that's lasting impacts on gas even after the war ends for a number of years, which again, this is not something the market is even seems to be pricing in a small risk of at this point.

SPEAKER_03 41:39

So when would you expect potentially market, you know, gas prices to to rise again? I mean, you're talking about potentially summer when

Europe’s Options And Industry Fallout

SPEAKER_03 41:48

you know the the the optics aren't that great, the end of the war doesn't look any any closer, and then could we see you know TTF prices going up to 70, 80, even up towards 100?

SPEAKER_00 41:59

That's I think the realm that we're in. We can easily get 50% higher than we are here. Being in Asia, I tend to focus more on the you know dollars per MMBTU, but we're currently around 20, easily could go to 30 or 40, you know, which is in line with the US TTF prices. And the pressure here builds, you know, absent direct attacks on more LNG infrastructure, the pressure here builds incrementally. Every day that goes past that the production is shut in, is putting more pressure on stocks and more pressure on stocks. And I think we're going to see that just incrementally build over the next few months. And really, by the time we get to, if you fast forward, say, three or four months, and we're at a point now where we're more, you know, we're getting more of a peak in demand and European stocks are staying relatively low and well below the average, then you're going to start to see, you know, more panic ultimately set in in the market because now we have to worry about how do we get through winter, particularly if we're not sure the strength rules will even be open by winter at that point either. So that's not, I don't, that's not a best, I think best case scenario, we avoid that. But that is a very realistic scenario that's still on the cart, which could see prices, you know, I think remain again 50% elevated from current levels easily.

SPEAKER_03 43:16

I mean, that that's fascinating stuff. And and in the way that, you know, the market isn't pricing in this huge geopolitical risk, it seems to be underestimating of what's happened, particularly, you know, in the gold, not only the gold, but in other areas as well. But how, you know, you said you were flabbergasted by, you know, Europe finding itself in this situation again with very, very low, or almost annually with very, very low stocks. What are the options you know Europe has, and particularly countries like Germany, which really needs to fill those those gas storage facilities before the onset of winter?

SPEAKER_00 43:50

Look, I don't think it's necessarily appropriate for me sitting outside of Europe to tell Europe how to do things. But clearly you did see a relaxation of some of the requirements to fill. stocks last year, you know, only three years after the Ukraine war, it's remarkable how quickly a level of complacency set in again before this, you know, scenario has happened. And this scenario is this is the doomsday scenario for energy markets that's been war games since the 1970s. Right? And this is over three times the scale of disruptions we saw in the wake of the Iranian Revolution, Arab oil embargo. And it's now impacting global gas and oil at the same time. So the ability to substitute is not bare, plus it's obviously impacting food, which indirectly is impacting gas. So we're seeing this uptick in gas demand just as it can't be met to feed people in the second half of the year. And, you know, you know, it's a bit rich, I guess, for me as an Australian given the level of complacency we see in Australia on a number of national security fronts as well. But 2022 was meant to be the wake-up call. And you know better than most how many times do we see headlines, this is the wake-up call on energy, this is the wake-up call on making sure on gas, on oil, on redundancy in our supply chains, particularly our energy and fuel supply chains, there's been like thousands of wake-up calls, headlines, everyone's been talking about it. And three years later, is this really another wake-up call or is this just a confirmation that we choose to remain asleep?

SPEAKER_03 45:22

And what are the implications for industry? I mean you talk about demand destruction, is this the the final, you know, the death knell for certain parts of industry, heavy industry in Europe that very much rely on on uh supply and competitively priced gas?

SPEAKER_00 45:36

Yes and no. And the reason I I say no again comes down to the difference with the 2022 scenario, which is this is more directly impacting Asia. So a lot of Asian customers have now lost and had force majeure called on their supply at relatively lower oil link prices. And so actually this could have disproportionately hit industry in Asia more than Europe this time. But ultimately, you know, the biggest winner out of this is going to be the United States where they're well they're still impacted by high oil prices, but they're not impacted by global rise in gas prices, their gas price remains low. If anything, we could now see increased permean production which even puts more downward pressure on gas prices via associated gas production. And the reality is the US industry from anything that's uh gas dependent is going to be a winner out of this and we'll see even more industry move to the United States where it's proving that in the face of major maritime trade disruptions, US gas prices remain more competitive than almost anywhere else in the world.

SPEAKER_03 46:37

And I I mean I one thing's probably for certain in all these periods of uncertainty is that it's going to be a very rocky ride in the over the coming months.

SPEAKER_00 46:45

Wouldn't you agree, Saul? It is and a lot of the redundancy is no longer in our system. And I think one of the last things here is we tend to be very focused on oil and gas and fertilizer and you know helium these days. But supply chains for a lot of manufacturing, particularly for EPC kit in energy comes out of the Middle East. Basic things like steel and many others. And that has also been disrupted through this process. So our ability to rebuild after this and repair a lot of energy infrastructure to produce more energy we'll need to rebuild those stocks is also going to be hindered by the very same war and the disruption through the strait. And again that's going to slow the pace of growth of supply not just within the Middle East but outside of the Middle East for several years to come.

SPEAKER_03 47:35

It's um it it's quite a bleak picture I think not just for Europe but for globally and for you know for consumers of just normal foodstuffs as well as energy going forward. So thank you very much for your insights and views here. Brilliant as ever and all the best. Thank you for being a guest on the Plugged in podcast.

Final Takeaways And Listener Call

SPEAKER_03 47:53

Anytime always a pleasure and you listeners thanks for listening to this episode of Plugged in. If you enjoyed this discussion please like rate and follow to make sure you get the latest podcast episodes as soon as we release them every Friday. We'd also love to read your reviews of the podcast. It helps us to keep up to date with what you, our listeners think of our podcast and what content you want to receive more of. Finally you can head to montelnews.com for more news and analysis from our team of journalists across Europe and beyond. See you next time.