The ongoing conflict in Iran has significantly disrupted the global liquefied natural gas (LNG) market, leading to a sharp increase in gas prices worldwide. The crisis was triggered by Qatar’s decision to halt LNG production and the effective closure of the Strait of Hormuz, a vital shipping route for natural gas exports. This disruption has sent shockwaves through Asian and European gas markets, reminiscent of the supply challenges experienced in 2022.
In recent weeks, Europe had been attracting the majority of LNG spot cargoes due to strong demand and dwindling gas inventories that resulted in higher prices compared to Asia. However, as of this week, the landscape has changed dramatically. With QatarEnergy pausing operations at its Ras Laffan hub, around 20% of global LNG supply is now off the market. The immediate impact is being felt most acutely in Asia, which typically receives the bulk of Qatari LNG exports.
According to Claire Jungman, Director of Maritime Risk & Intelligence at energy analytics firm Vortexa, “There’s no spare capacity in the LNG market, so the disruption could be immediate and immense.” As a result, both Asia’s spot LNG prices and Europe’s TTF benchmark gas prices have surged to multi-year highs. The JKM-TTF spread, which measures the premium of Asian spot LNG prices over European gas benchmarks, reached over $6 per million British thermal units (MMBtu) on Tuesday, marking a significant increase.
The closure of the Strait of Hormuz not only halts LNG shipments from Qatar but also affects United Arab Emirates exports, further tightening supply. Florence Yu, Associate LNG Market Analyst at Vortexa, noted that “China, India, and Taiwan are among the importers most exposed to this risk.” Although Europe typically receives about 12% of Qatari LNG, the ripple effects of this supply squeeze are significant, as Europe is losing the competition for alternative supplies.
As competition for LNG intensifies, Europe faces challenges in securing cargoes at a time when its storage levels are below seasonal norms, approximately 10% lower than last year. Massimo Di Odoardo, Vice President of Gas and LNG Research at Wood Mackenzie, points out that around 1.5 million tons (or 2.2 billion cubic meters) of LNG exports are at risk for each week that the Strait remains closed.
The impact of these developments is compounded by additional regional disruptions, including Israel’s shutdown of offshore gas fields and its exports to Egypt. This has further strained the global gas market, making it more difficult for both Asia and Europe to procure available spot LNG supplies.
The current situation highlights the limitations of the U.S. LNG export infrastructure, which is already operating near capacity. Amena Bakr, a commodities analyst at Kpler, stated that U.S. exporters are unable to significantly offset the loss of Qatari supplies. The ongoing conflict in the Middle East has reignited competition between Asia and Europe for the limited available cargoes.
In light of the substantial disruption to global LNG supply, both Asian and European markets will need to draw more heavily on existing storage. This scenario could lead to increased demand for restocking as the summer progresses, tightening market conditions even further beyond the eventual resumption of trade through the Strait of Hormuz.
As the geopolitical landscape evolves, the dynamics of the LNG market remain uncertain, with significant implications for energy prices and availability in both Asia and Europe.
