Hormuz crisis: Outlook remains highly uncertain

The Strait of Hormuz crisis has reshaped the outlook for global energy markets, with uncertainty over LNG flows, European gas storage and geopolitical risk hanging over the months ahead.

In this episode, we look at how the conflict has affected oil and gas markets, whether disruption through Hormuz has become a lasting feature of global energy trade, and why Europe could face a tight autumn and winter; particularly on price, even if outright gas shortages remained unlikely.

The discussion also covers low European storage levels, the role of weather, market reactions to Donald Trump’s interventions, and the wider geopolitical and energy risks facing Europe into 2027.

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

Guests:

Elise Wu - LNG Correspondent, Montel News

Amund Vik - Senior Advisor, Eurasia Group

Bjarne Schieldrop - Chief Analyst, Commodities, SEB

Tobias Federico - Chief Analyst, Montel

Editor: Alexandra Carlon

Producer: Alexandra Carlon

#StraitOfHormuz #EnergyMarkets #EuropeanGas #GasPrices #LNG #EnergyCrisis #EnergySecurity #OilMarkets #Geopolitics #EuropeanEnergy #GasStorage #WinterOutlook #Iran #EnergyTransition

Transcript

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Why Hormuz Matters To Everyone

Bjarne Schieldrop - Chief Analyst, Commodities, SEB: 00:00
The strait of Hormuz is much, much better than the nuclear bomb, right? Because then you can threaten to close it down to anyone at any time, but you can't really have any more accidents or problems or fires in the US or whatever.

Amund Vik - Senior Advisor, Eurasia Group: 00:14
Like there is a the market will be running on very tight margins.

Tobias Federico - Chief Analyst, Montel: 00:19
And also looking into short and long-term scenarios, what we are building up, it's quite bullish, honestly. Despite the geopolitical tensions we are having, which are coming on top.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 00:35
I'm here in Oslo, a million miles away from the war in Iran. If the Straits of Hormuz aren't open in the weeks and months ahead, we will all feel the impact. Not now, but certainly by the autumn.

Europe’s Gas Price Reaction So Far

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 00:53
Well, I'm delighted to be joined by Elise Wu, our LNG correspondent based in France. A warm welcome to you, Elise.

Elise Wu - LNG Correspondent, Montel News: 01:01
Thank you for having me.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 01:02
So, Elise, can you can you bring us up to speed on the latest developments around the Strait of Hormuz and how have European gas and energy markets reacted so far?

Elise Wu - LNG Correspondent, Montel News: 01:11
We've seen recently Iranian officials come out and say that they have reached a temporary agreement with Oman regarding a route for shipping through the Strait of Hormuz, but that of course has to be taken with a pinch of salt. They're also saying that the strait isn't reopened and the US haven't reacted. But in terms of tangible signals around flows normalizing, they have been quite negative. We've seen Iran publish a list of 46 vessels comprising, among others, oil and LNG tankers that wouldn't be allowed to cross the strait again because they had previously done so without Iran's authorisation. And one of those vessels in the list was the gaslog Shanghai, which Iran attacked earlier this month when it was trying to exit the strait. So analysts have been seeing a heightened risk of attacks on ships through the strait and don't seem to be expecting a resumption of Qatar's LNG production anytime soon. And then in terms of the impact on European gas prices, of course, in March we saw a panic price surge in terms of front month TTF gas prices to above 70 euros a megawatt hour. That was more than a doubling compared to pre-war levels. And then in sort of April, May, and June, we saw prices oscillate between €40 and 50 euros a megawatt hour. But since July, mid-July, we've seen a new bull run with prices consistently trading above 60 euros a megawatt hour. So it does seem clear that the market is pricing in a prolonged disruption of shipping through the Strait of Hormuz. And that's also against the backdrop of tight supply and demand fundamentals in terms of gas for Europe and of course concerns around gas storage levels ahead of winter.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 03:00
But away from the immediate geopolitical headlines, where do European gas prices and storage levels stand as we head into the autumn and the winter heating season?

Low Storage And Weak Injection Incentives

Elise Wu - LNG Correspondent, Montel News: 03:10
So European gas storage levels are currently very low. They're only around 63%, which is the lowest level in five years at least. That's partly because the injection season started from a relatively weak position, but also because the economics for injecting into storages just hasn't been there over the past months. So we've seen futures gas prices for winter not providing a sufficient premium to make it worth buying gas now, storing it and then selling it during the winter. And then, of course, on top of that, Middle Eastern LNG has been trapped inside the Persian Gulf. So that's added to the problem because although Europe wasn't historically relying on Qatar for a large chunk of its LNG, it's having to compete compete more fiercely with Asia now, which did source a large portion of its LNG from the region previously. But generally, I think it's important to say there doesn't seem to be a concern about a physical gas shortage. So even if storage levels fell short of targets, there seems to be more of a price risk rather than a volume risk there.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 04:19
Thank you very much for setting the scene for us, Elise.

Elise Wu - LNG Correspondent, Montel News: 04:22
Thank you for having me, Richard.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 04:23
We dug deeper into what the Hormuz crisis meant for energy markets heading into autumn and winter, and how prepared Europe was for what came next.

Panel Joins On War And Markets

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 04:31
Well, I'm delighted to be joined by three distinguished geopolitical experts. Bjarne Schieldrop of SEB, a warm welcome back on the pod, and Amund Vik, Warm Welcome Back on the Pod, Amund Vik of Eurasia, and Tobias Federico, chief analyst at Montel. I'd like to start asking you, Bjarne, has has Donald Trump already lost the war in Iran?

Bjarne Schieldrop - Chief Analyst, Commodities, SEB: 04:55
In my idea, he has, and I think he probably knows it, that he doesn't want to admit it to himself or to the world or to the US public. And what are the consequences of that? The consequence is that he will try to pay for climate till the midterm election on the 3rd of November, and then eventually he has to pull out because I mean he doesn't have the the defensive uh abolition anymore. So eventually he had to really leave. So the question is how and what.

 Who Controls The Strait Now

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 05:23
And potentially with quite a lot of anger on his face.

Bjarne Schieldrop - Chief Analyst, Commodities, SEB: 05:26
I think so. Yeah, unfortunately.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 05:28
But he doesn't like losing, Amund, does he?

Amund Vik - Senior Advisor, Eurasia Group: 05:30
He doesn't like losing at all. And I think at the moment what we're seeing is the US under Trump with no escalation dominance in the region. So what he's looking for now is some way out that enables him to save face on the pump, which is the most important thing in the US at the moment.

Amund Vik - Senior Advisor, Eurasia Group: 05:46
And ahead of the midterm election as Bjarne said. So that's yeah, that's the key elements here.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 05:50
How do you see the Straits of Hormuz situation developing here, Tobias? I mean, what are your use here?

Tobias Federico - Chief Analyst, Montel: 05:57
I think what will come out in the end, regardless who's going to win, is that there's a type of control over maritime shock points. And in the Strait of Hormuz, I do expect some type of control, tolls, security fees, Trump insurance, whatever will be there. And it's a key element for global trade and mostly for energy trade.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 06:17
And how do you view it then, Bjarne? I mean, who is taking control?

Bjarne Schieldrop - Chief Analyst, Commodities, SEB: 06:21
Oh, Iran is definitely taking control. And the fact that Oman now is talking to Iran to try to figure out and come to an agreement on how to administer the transportation to the Strait of Hormuz in the future is sort of just a reflection of Oman realizing that this is in fact going to be the future. Of course, Donald Trump resists it and hate Oman for it, but I think Oman is just realistic about the situation.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 06:49
So, Bjarne, in terms of, you know, the Straits of Hormuz, you are we seeing some ships come through? And what kind of ships are they? I mean, we're seeing also sometimes being attacked and oil spillage, which is very unfortunate for the region.

Oil Gets Out LNG Struggles

Bjarne Schieldrop - Chief Analyst, Commodities, SEB: 07:03
And that has been the big question all and only this summer, how much is actually going through? And we cannot see it, and we have all different reports, but now it's becoming clear that that has been quite significant. And like five, six million barrels per day, predominantly crude because it's very large, crude carriers, two million barrels, proletanks are very much smaller, so I don't think the risk reward is as good. And nail refineries are closed down. I mean, it's so much we don't really know what's going on down there. But I think, you know, the in hindsight, getting information of that maybe four to five million barrels, even six million barrels is going didn't going through the strait of Hormuz, suddenly starts to explain the price. With three million barrels going to the Red Sea from Saudi Arabia and China importing five million barrels less in June and three and a half million barrels less in July, suddenly the whole puzzle of why the oil price didn't spike is is falling into place.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 07:57
As well as inventories and lower Chinese demand potentially in it.

Bjarne Schieldrop - Chief Analyst, Commodities, SEB: 08:01
Well, I don't think that Chinese demand is so much lower. It's just that their imports of crude is much lower.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 08:07
You know, these ships, have they been monitored? Are they slipping through at night? I mean,

Bjarne Schieldrop - Chief Analyst, Commodities, SEB: 08:11
Exactly. Slipping through at night in convoys with with defensive help from from the US Army and Air Force and trying to help them through.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 08:20
But these are oil shipments. What's happening with LNG and gas, Amund? What are you seeing there?

Amund Vik - Senior Advisor, Eurasia Group: 08:27
Well, LNG and gas are much more constrained, right? So oil in addition to ships coming out at night with the transponders off, you can some of it's been shipped out on pipeline. For gas, the story is much more difficult. Certainly for Qatar it's difficult, both because there's been hardware damage in the region, but also because they have no alternate route out without going through the strait and sort of the risk-reward, smaller ships. Also, I would not like to be on a slow-moving tanker filled with LNG through the strait either. So there's a, it's explosive stuff, right? So for gas, the market's much more constrained than for oil. Less system coming out and the market's more constrained.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 09:03
And when do you see, or if,  the straits opening?

Amund Vik - Senior Advisor, Eurasia Group: 09:09
Well, they're discussing right now. I think at some point some deal has to be made, right? And at the moment it looks like any deal would involve some sort of fee structure with cooperation between the Iranians and Oman. But also the incentive to make a deal at the moment's, you know, lower for the parties. No one really has anything. The difference, at least, between what anyone can offer and what the other party would like to receive is too big to be, I think, very optimistic for a comprehensive long-term deal.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 09:37
And what's your view Tobias?

Europe’s Winter Curve And LNG Competition

Tobias Federico - Chief Analyst, Montel: 09:40
I mean, LNG is at least our partial view when it comes to Europe, quite important to Europe. But the LNG delus to Asia are the more important element into this. In Europe, I think mostly Italy is affected. But nevertheless, as LNG is an element of global gas market and the global gas price, the shortage in Asia will affect European gas prices. And that's why we are also strongly monitoring what's going on there, uh, what's with the volumes. And looking into the price forward curve of the gas market in Europe, we see that there is a tension expected until February, March, and then the forbidd curve drops. And this is something to do with additional liquefication capacities from the US, but not only there, but also from Africa and from South America, for example. And not really that we will have a solution of the Strait of Hormuz. But nevertheless, I think this winter might become tight, not volume-wise, but definitely price-wise. So there will be a competition on LNG deliveries from the US to Asia or to Europe, depending on the willingness to pay for liquefied natural gas.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 10:46
When you say tight, what do you mean?

Tobias Federico - Chief Analyst, Montel: 10:50
Well, we I don't expect that we will have an energy crisis type like in after or in 2022 with the Ukrainian situation and and Russia. So we won't see these price spikes. It's a bit of a psychological element, as we are having we are strongly looking in Europe onto the storage levels currently, and they are really low on a five-year low. In Germany, actually, it's on a 15-year low when it comes to storage levels, but we are comparing apple with Paris in that sense because five years ago we didn't have any liquefication capacities in Germany. So the total LNG volumes to Europe in general increased. To Germany, of course, it increased quite a lot. So we have an additional volume buffer. So I don't expect any any shortages in volumes, but it's quite tight. Once we will reach the 20% levels of storage volumes, then I think that would be in February, March, the market might get nervous in case we are having a cold winter.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 11:50
We'll get another piece from these. But if else, no return to 2022. But 15 years ago is he's saying we did have Russian gas coming in as well, which is also an additional buffer. Well, you know, if if we stick to the Straits of Hormuz Bjarne, I'm a little bit intrigued. Will we ever get back to the way it was, say, in December, January, you know, the traffic coming through, or have the had what's what's happened in the region, has that fundamentally changed trade, maritime and otherwise?

Bjarne Schieldrop - Chief Analyst, Commodities, SEB: 12:19
Probably to some degree, but I think what Iran first and foremost wants and needs is that they want a weapon of deterrents. And they've been after

Germany’s Storage Debate And Targets

Bjarne Schieldrop - Chief Analyst, Commodities, SEB: 12:30
nuclear weapons for a long time, as a deterrent. But but we do see that nuclear weapons they don't work. Ukraine is attacking Russia, one of the biggest nuclear powers in the world. Iran is attacking Israel, a nuclear power. So the Strait of Hormuz is much, much better than the nuclear bomb, right? Because then you can threaten to close it down to anyone at any time. You don't want to accentuate on the threat. You just want to have the threat so that no one can ta attack you. That is what you want to prevent future attacks and threats. That is what the Strait of Hormuz is for, for Iran, plus potentially a small fee, but also de facto after this world war that Iran is the king and the controller of the Strait of Hormuz.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 13:20
Absolutely, and I'm sure they'll just sell it that way. But do you think then in terms of the signals coming from the White House? I mean, I call it a little bit the merry-go-round. You get, you know, escalation that is gonna bond back the civil li to civilization, prices go up, and then there's talk of the ceasefire, prices go down. So as soon as oil prices sort of top 90 plus, then there's talk of the ceasefire. What's really happening? Why is no one really getting this, if you like? Yeah.

Bjarne Schieldrop - Chief Analyst, Commodities, SEB: 13:51
Well, I think everyone are looking at the crude oil price or the other crude prices, and and they are like 94, 95. And and as I say, whenever they get to 100, Donald Trump is is talking about ongoing negotiations and probably a reopening and then down to 75 ago. But so this that is sort of an actual situation we've been living in for in for quite some time. But of course, there is why the crude oil prices haven't escalated or rallied or gone to the moon is of course because strategic reserves and commercial reserves are largely crude, right? And and that is the buffer. But in natural gas, we don't have storage buffer. In oil products, we don't have storage buffer, and you know, diesel price is $170 per barrel. I think sort of now Donald Trump doesn't know what to do. And you know he's tried to bomb them forever, and before that sanctioned them forever. And now he cannot attack. Yes, he can threaten to bomb them to pieces, but he doesn't have defensive rockets anymore. So when they re-attack after his next effect or possible attack, you know, you cannot defend oil and and gas infrastructure in the Middle East and the US allies in the Middle East from the attacks because you're low on defensive ammunition and rockets. So that is the trouble on re-engaging on new bombing on our end. Yes, they have the bombs to bomb them, but they don't have the defensive rockets to defend themselves, and they take years to refuel. And so now he's he's saying, okay, so we revert to economic sanction, and that is basically just kicking the cam down the road because that doesn't work. And and the last thing, every day that passes by where the US is not bombing Iran, they are moving at high speed to build new weapons and new defensive system and prepare, prepare for the next conflict. So they are getting better and better and stronger and stronger by the day.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 15:50
Absolutely. And like you say, there's the actual attacks in the region, but it's also the perception of attacks is almost as dangerous. How do you view this? What are we facing in this autumn and winter? It's all a bit of a mess, right Amund?

Amund Vik - Senior Advisor, Eurasia Group: 16:05
Yes. I think we we could expect this kind of to slug onwards through the winter with this permanent geopolitical risk premium on everything that moves through the strait. And I think you have to assume that that will continue onwards, right? What this crisis in the war has kind of proven is that what was a hypothetical problem of Iran closing down the strait after start of the year is now a real prospect that can be tied to any geopolitical tension in the region or elsewhere where Iran has a horse in a race, right? So so I think for oil markets and gas markets, this is a new reality compared to prior to the war. But we are once again in a situation where nothing else can break in Europe. So it will be tight, but the prices will be the primary indicator of a tight market. But you can't really have any more accidents or problems or fires in the US or whatever. Like there is a the market will be running on very tight margins, both for power and for gas over the winter, if it's cold at least.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 17:03
But this cycle of a threat of escalation, a project rise, and then talk of ceasefire, negotiations, do you see that kind of that cycle continuing them?

Amund Vik - Senior Advisor, Eurasia Group: 17:14
Well, yes. And I think if you put yourself in Trump's shoes, he's been really effective at manipulating the markets. Whenever the market closes up to $100, he goes out and says something and the market drops. And this creates, you know, for him it creates an incentive to keep doing it again. And also, if you're a trader, there's a high, you really have a high risk taking a long position after $90 because suddenly Trump will say something and you'll lose a lot of money. So it also changes the behavior of the market over time when he does that. And I think this is uniquely Trump. I think if Biden tried something like that in the early days of the Ukraine war, I think the response of the markets would be slightly different. But he can, for some reason, get away with it. And I think you can expect him to keep it up. And I think it's scary enough for people that you can lose so much money when he comes out with a tweet or a through social post that I think the markets will largely keep doing what they're doing. Basically climb, climb, climb, and then he said something and drop a little bit back down. That said, if the Chinese have to re-enter the market at higher volumes, if something happens that you know makes the crude market contract a little bit, then I think you'd see a stronger price response, right? Because this can only work on the margins. If there's real shortages, I think you'd see higher prices.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 18:29
And in terms of European gas to build, I mean we we've seen the situation since the end of February, early March. Nothing's really changed in terms of supply from the Gulf to Europe. But now that there must be a sense of urgency creeping in here. I mean, we the you know, Europe does need to fill these storage facilities. And and when and how is that going to happen?

Tobias Federico - Chief Analyst, Montel: 18:49
Yeah, that's the question. If if you look into the how situation, first of all, we see that the summer winter spread is negative. So there's no economic incentive to do so. And we see it. There might be a political incentive. At least in Germany, we have this obligation that you need to refill to certain levels. But actually, we had the same situation last year, where the owner of the biggest German storage facilities, it's the German facility is Reden, the owner is Sefe, and Sefe is state-owned. And actually, they're not refilling at all. Even they could, in theory, and they could have the money, so their storage level is even lower than in the year 2021, just before the Ukrainian war started. And Reden was owned by Gazprom Germania back in the days. So that's an interesting situation. This is one thing. The other thing is also that in Germany, at least they're discussing a strategic gas reserve of 10% of the storage levels. That could be interesting, could be a buffer, but if it comes really, then it would come for the next winter season. So 27-28, which also makes sense because you need to refill gas storage up to August, or even 1st of November. That's it, that's the kick-in date. And the 1st of November, for example, is something where if you look into current projections of the German gas filling storage and also European ones. In Germany, we do expect currently 65% storage levels. Currently we are at 50%. And even 65% would be hard to reach, honestly. On a European level, we do expect around about 70% filling levels. And that's a bit more of a psychological element, honestly. We didn't really see that much in the gas market, what happens in the oil market, where you do have the impression that with a through social tweet, also a message on through social, that the market is reacting directly. But we saw some interesting effects in the gas market where people obviously took some interesting positions right before a tweet has been posted. And that's interesting to see. But the general price levels right now at 60 euros, if I'm not wrong, so it's double, double the prices we had before the war. And the situation economically is not really changing. And the governments are calming down a bit. They don't see a volume risk as we do, but they're not talking about a price risk. And I think this is a type of a boomerang because higher gas prices somehow will come to the end consumer latest next year, and then it might be become a political issue.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 21:14
But it's not in the same situation, again, going back to 22, in effect, the German government wrote a blank check for filling the storages. And it's quite interesting this aspect of traders or whatever, someone in the market getting the information beforehand and acting on it. I mean, I don't know what your feelings are Bjarne. I mean, how your customers, what you're hearing in the markets, you know, what are people reluctant to trade at the moment? Are they holding back or are they joining the party as it were?

Energy Crisis Fatigue In Trading

Bjarne Schieldrop - Chief Analyst, Commodities, SEB: 21:42
Well, it's just one reflection first. The fact that the time spreads on TTF NatCast is not giving a strong incentive to rebuild stocks aggressively. It's basically a very, very strong signal from the market that the market is not. The market is not deeply concerned. And I think that is worth sort of taking into account. So why is that? So something the market is thinking or calculating is telling the market that we don't need to be crazy aggressive to rebuild stocks. I don't know why, but that's sort of worth looking into. You know, I think in 2022, everyone was shocked to pieces. And our industrial clients were extremely active all through that year and 23. I don't know if the market has become tired of being shocked. Because I think many of our clients, I mean, this has not been high volume, high activity from our industrial clients, rather it being sort of pulling back and saying, oh wow, all right, we'll just wait and see. You know, so rather than sort of being hectic, hedging, taking on new hedges, off old hedges, they rather sit back and extremely careful and yes, we'll wait and see. And, you know, a little while back in the summer, Brent Crude was trading at $70, and you could buy, you know, oil product prices for a second half of 27 at normal prices, all inclusive, but no one wants to buy that either, because they go, maybe I can buy it cheaper, right? So they've been rather sort of seizing on that opportunity to buy low prices when the spot was down at like 78 in June, late June, I think it was. And the second half of 27 was very, very normalized historical prices with a base of $70 crude and so you know no one really sort of jumped on it either.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 23:41
So there's a bit of some energy crisis fatigue. I mean,  let's move away from the Gulf, the Iran war, and look at the wider geopolitical picture. What other headwinds are we facing this year and next?

 Europe’s Next Political And Supply Headwinds

Amund Vik - Senior Advisor, Eurasia Group: 23:54
Well, there's not a shortage of headwinds, I think, around. So staying in Europe, I think the French election next year will be one to watch, right? So in general, I think for energy industries or anyone following sort of long-term, high capex industries, the sort of gradual deterioration of political decision-making ability is is bad. So you can see it in parliaments around Europe and in the US, certainly, but I think the sort of the primary flashpoints of that would be French election next year and then onwards to the next sort of German federal election, I think would be sort of very interesting in terms of political headpoints. In general, you can kind of see this trade war discussion is ongoing. I think for Europe, this Chinese Europe DC discussion, I think, will be just slightly longer term, but also now very difficult. So I think shortages on critical minerals, on what you need both for the energy transition and for basically for everything else, I think would be highly difficult.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 24:52
So I think it and it's quite interesting as well in that debate and that context, because suddenly nuclear has become very much the torch for the right wing and renewable is very much the left thing. It's quite interesting how that's kind of flipped, if you like.

Amund Vik - Senior Advisor, Eurasia Group: 25:06
I think that's interesting, also because it means in some way or shape, the right's also acknowledging that there's something to climate change. Because if you didn't, then you would certainly just buy burn coal or gas, which is much, much cheaper than building new nuclear. But I do think that's an interesting topic to touch on, also because you see this what's staying in France with RN and Le Pen's program. Certainly they won out of short-term renewable projects for the short and medium term in favor of nuclear, which has a longer time horizon. So I think if you look at some power markets in Europe going forward, you have this massive squeeze towards the end of this decade, 28, 29, and 30, where the only option you have is basically onshore wind and solar to and some offshore wind project to plug that hole. And if more and more governments kind of stepping back from some of that more controversial land-based renewable energy in favor of longer-term assets, then that doesn't really solve that squeeze. And inside that time window is all the data centers and all the AI growth and everything else going to have to come to Europe as well. So I think that sort of problem around NIMBYism and some of the onshore renewable energy things are is a real problem, right? Because it's the only fix for that short-term window, at least when there's no gas turbines to be bought anywhere for a for a time at the moment, as I hear.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 26:22
Absolutely. Are there any sort of bearish signals out there? Is there any good news out there, Tobias, that we can highlight?

Tobias Federico - Chief Analyst, Montel: 26:28
Well, you give me the most complicated question. Actually, it's a bit hard to see a bearish signals currently. I think we are what I've heard in a terminal poly crisis that describes it. So we have so many crises around, people tend to find simple answers for solutions, but sometimes they're too simple because the situation is too complex. I mean, of course, you could say, well, we have still renewables to be built, they bit slow down the prices, and that's quite true. But if you look into the day-ahead market, for example, in the evening, power prices they are quite steep and quite high, so that is only one part of the coin. Really bearish signals I'm currently not seeing, honestly. And also looking in the short and long-term scenarios, what we are building up, it's quite bullish, honestly, despite the geopolitical tensions we are having, which are coming on top.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 27:19
So the signal would be, why now? Well, don't wait.

One Factor That Decides Winter

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 27:22
I'd like to just surround off with one question, sort of general question, the same question to all three of you. If we're sitting here in January, if we were sitting here, this is a hypothetical situation, what do you think would be the single factor that either made the autumn or the winter challenging or comfortable? Be honest. So next January, January 27.

Bjarne Schieldrop - Chief Analyst, Commodities, SEB: 27:44
So what would make this autumn challenging and why comfortable?

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 27:48
What one single factor?

Bjarne Schieldrop - Chief Analyst, Commodities, SEB: 27:50
I think you know, natural gas price and power price in Europe is all about end of winter, right? March. Do we have enough natural gas until March? I think that is the big question, and that is where the risk is. And that is where you're trading gas. It's not about next summer, it's about lasting through the winter. So, of course, if this like heat summer suddenly turns into a rapid cold spell from October lasting all the way out, then we have deep trouble. And and we've seen that happening before. So locking Scandinavia, Northern Europe into some kind of cold spell, nothing forecast for that. But you know, that would be hugely problematic. And, you know, everyone are or no one knows when the Strait of Hormuz will reopen, to the point that everyone assumes it it is open from January, right? And no one has a clear on that. As if by magic. Well, also, you know, it will open sometime. I don't know when. So I just have to assume something in terms of beer signals. I think it's worth remembering that we had a peak in fossil prices in 2022, and 26 was supposed to be the trough with a surplus of two, three million barrels per day accrued. So from peak to trough kind of dynamics. And now, if we reopen the Strait of Hormuz in January, then the latest projection from the EIA and the AER and OPEC, maybe not OPEC, but Bloomberg, is that next year is going to be a surplus of four or five million barrels instead. So it's still sort of this like big pattern of from peak to trough kind of thing. But then again, you know, we could bear one year from now and the Strait of Hormuz is still partially closed. So we don't know.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 29:32
Or fully close, or from the open Safe, you know, all options on the tablecloth. So that one single factor that's gonna be determining what's how shed in the autumn of the winter.

Amund Vik - Senior Advisor, Eurasia Group: 29:42
Well, I think obviously the Strait opening,  some event there would be important. But I do think apart from the geopolitical sort of events in the Middle East, we're down to the weather, right? So if it's mild, it'll be okay. If it's super cold early, as I said, it'll be less okay. If you look at Norwegian hydro reservoirs are also not very full, right? So, and the nuclear power on the continent struggling with cooling water, there is a multitude of minor problems that can be all alright if the weather is nice and less good if the weather is bad. And I think coming from the world of politics as well, the frustrating thing about energy policy in general is that nothing is really short-term. It takes a long time to do anything apart from break things, which we see in in the middle in the Middle East at the moment, right? So on the bad side, I think something worse happening or sort of definitive no opening towards the end of the year, I think would shock the markets a little bit and create difficulties. But in general, I think we're down to weather patterns and Russian hybrid warfare as the kind of the variables that can create to define whether it will be a nice winter spring or a bad one.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 30:54
So we got Strait of Hormuz, the weather, Tobias, the other options?

Final Thoughts And Listener Request

Tobias Federico - Chief Analyst, Montel: 30:58
Well, I would like to continue with the hybrid warfare part, honestly, because that is something where currently Germany a bit is waking up from their naive deep sleep, I would say. I know that German politicians don't like to hear that, but I think Germany has been quite naive. And looking into the situation, somehow we must cope with this threat of hybrid warfare from Russia. And that is something which I think once we manage it in a, let's say, way where Russia believes that we are able to fight against it, to defend ourselves against hybrid warfare, then could be despite those two other topics, the one thing I want I would like to add on top as a chairman.

Snjólfur Richard Sverrisson – Editor-in-Chief, Montel News: 31:39
Well, a scary scenario anyway. But Bjarne, Amund, and Tobias, thank you very much for being guests on the Plugged In Podcast. And to 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 Thursday. 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.