Flagship Energy’s Tejal Shah Energy Markets Update – 17th January 2024

This week the news of retaliatory strikes by U.S. and UK due to recent attacks by Yemen-based Houthi forces on commercial ships in the region has dominated the headlines. It has raised concerns about widening conflicts in the region. About 12% of world shipping traffic accesses the Suez Canal via the Red Sea including oil and liquified natural gas cargoes. Although Egypt’s Suez Canal authority played down any disruption, many container vessels have been pausing or diverting from the Red Sea, the fastest freight route from Asia to Europe. Many ships have been forced to circumnavigate South Africa’s Cape of Good Hope instead which could add an additional 10 days to the route. Freight container volumes through the Red Sea region have fallen by around 65% from expected values according to a Reuters report. However, there has been no to little impact to European and UK gas prices with many contracts pushing to recent lows and you may be questioning why. Well, right now there is no immediate threat to the security of supply, production levels continue as normal. Secondly Europe has high storage levels and stable flows via Norway, UK and LNG from the U.S. Milder temperatures in the coming weeks is also expected to ease demand. Whilst the situation has potential to escalate its more of concern than a factor driving prices. It is however important to note that if ships continue to take the longer route for an extended period, costs will naturally increase and will be reflected in the spot price.