European gas prices plunge 20% after ceasefire: biggest drop in 2 years

The European gas price fell sharply on Wednesday, dropping by about 20 percent. This marks the largest decline in more than two years. The reason is the ceasefire between the United States and Iran, which could pave the way for the reopening of the Strait of Hormuz.

The Dutch TTF gas price, the most important European benchmark, dropped to approximately 44.13 euros per megawatt-hour. This brings the price to its lowest level since early March, just before energy prices began to rise due to the war.

The decline was accelerated by the positions held by hedge funds and other speculators. In the weeks leading up to the ceasefire, they had built up record levels of long positions, expecting prices to rise further. Now that those expectations have not materialized, positions are being rapidly unwound, putting additional pressure on prices.

Physical traders remain more cautious. They are waiting for confirmation that the agreement will hold before adjusting their strategy.

Despite the sharp drop in prices, little has actually changed on the ground. Not a single LNG tanker has sailed through the Strait of Hormuz since the start of the conflict. Earlier this week, two Qatari LNG tankers abandoned their attempt to pass through after failing to obtain permission from Iranian authorities.

Tom Marzec-Manser of Wood Mackenzie points to the real bottleneck: the restart of Qatar’s Ras Laffan, the world’s largest LNG hub. That facility was damaged by attacks in recent weeks.

According to Wood Mackenzie, it would take until the end of August for Ras Laffan’s twelve operational processing lines to return to full capacity, even if QatarEnergy begins the restart in early May. Two other lines were severely damaged by Iranian missiles. Qatar estimates that repairs could take up to five years.

Ras Laffan is the world’s largest LNG hub and crucial to gas supplies for Europe and Asia. This means that even with the Strait of Hormuz fully open, LNG supplies will remain disrupted for months. Gas prices may fall further on the back of hope and market sentiment, but physical supply is recovering much more slowly than the market currently seems to be pricing in.

Gas prices have fallen on the back of optimism, but in reality, not a single loaded LNG tanker has sailed through the Strait of Hormuz since the start of the war. Earlier this week, two Qatari gas tankers even abandoned their attempt to transit the strait after failing to obtain permission from Iran.

The coming days will therefore be crucial in determining whether that changes. As long as no gas tankers are actually passing through, the price decline is based on expectations rather than a genuine recovery in supply.

In addition, the ceasefire lasts only two weeks, and the terms are vague. Iran speaks of passage in coordination with its armed forces and within technical limitations. What that means in practice for large gas tankers remains unclear. If those limitations result in LNG ships still being barred from passing, the relief in the gas market could quickly turn into concern again.