More sensitive than oil prices! The world's natural gas "throat" is being squeezed, could European and Asian gas prices double?

Cailian Press, March 2 (Editor: Xiaoxiang) As the U.S. and Israel’s attacks on Iran ignited Middle East conflicts last weekend, industry experts are widely concerned that this military conflict could deliver the most severe shock to the natural gas market since the Russia-Ukraine conflict four years ago disrupted global trade.

Iran’s neighbor Qatar is one of the world’s most important natural gas producers, and the region is also a critical supply route—nearly 20% of global liquefied natural gas exports must pass through the Strait of Hormuz, a vital chokepoint for global energy supplies.

Ship tracking data shows that LNG trade through this narrow waterway has now largely halted. Since the weekend, at least 13 LNG carriers, originally positioned east of this chokepoint, have turned around to reroute.

Dealers reveal that Asian buyers—who source about a quarter of their LNG from Qatar, the world’s second-largest exporter—are urgently contacting suppliers to confirm alternative sources. Meanwhile, with Israel shutting down some gas fields, Egypt is attempting to pre-allocate shipments.

Tom Marzec-Manser, Director of European LNG and Natural Gas at Wood Mackenzie, said: “Any naval activity in the Strait of Hormuz will particularly benefit prices, as will any developments in Qatar’s LNG production.”

The outbreak of the Russia-Ukraine conflict in 2022 caused unprecedented turmoil in international natural gas trade—this ongoing geopolitical conflict severed Moscow’s ties with its largest export market, intensified market volatility, and triggered record-breaking surges in European and other regional natural gas prices.

Currently, Asia and Europe remain vulnerable to chain reactions from escalating Middle East crises. LNG shipped to Asia and Europe must pass through the Strait of Hormuz. Over 80% of Qatar’s LNG exports last year went to Asian buyers.

Small-scale exporters like the UAE also ship LNG through this strait.

Anne-Sophie Corbeau, a researcher at Columbia University’s Center on Global Energy Policy, noted, “There are no alternative routes at the moment. Will prices in Asia or Europe surge more? Europe’s exposure is relatively small now, but inventories are low. It also depends on how much cargo is transshipped to Asia.”

Qatar plans to export 82.2 million tons of LNG in 2025. According to traders, a planned maintenance at Qatar’s Ras Laffan facility last week will reduce exports.

Goldman Sachs: European and Asian Gas Prices Could Double

Goldman Sachs states that if the Strait of Hormuz is shut for a month, natural gas prices in Europe and Asia could double. The European benchmark TTF gas price could even rise by 130%, reaching $25 per million British thermal units.

Goldman believes that, unlike oil, until last Friday, European gas prices largely did not include geopolitical risk premiums related to Iran. Therefore, the bank sees significant upside risks for European gas and global LNG prices.

The most significant impact on the global natural gas market would come from potential disruptions of about 80 million tons per year (19% of global LNG supply) that usually pass through the Strait of Hormuz, which could be triggered by ongoing conflict escalation.

Specifically, in a scenario where LNG flows through the Strait are completely interrupted for a month, Goldman estimates this would tighten Northwest European gas inventories by about 8% of total stocks. Its fuel-switching model indicates that European gas prices would need to stay at or above distillate fuel prices for over three and a half months to maximize the shift of energy consumption toward coal and oil products, offsetting supply disruptions.

At current oil prices, this would mean the TTF gas price in Europe could effectively double to €62 per MWh ($21 per MMBtu). Given that oil prices might also rise in this scenario, TTF could approach €74 per MWh ($25 per MMBtu), a level that triggered large-scale gas demand destruction during Europe’s 2022 energy crisis.

If disruptions in LNG transportation through the Strait last more than two months, European gas prices could rise above €100 per MWh ($35 per MMBtu), causing more significant global gas demand destruction, as the market would find it harder to fully offset the supply tightening before the next winter.

Goldman notes that, since Asian spot LNG prices (JKM) are closely linked to TTF, the upside risk for TTF also applies to JKM, as Asia seeks to balance LNG flows from the Atlantic to the Pacific to meet its needs.

Multiple Gas Traders Are on High Alert

Currently, Japanese major LNG shipowners and operators, such as NYK Line, have instructed their vessels to avoid the waters around the Strait of Hormuz. Another large Japanese LNG shipowner, Mitsui O.S.K. Lines, has ordered ships to standby in safe areas, while Kawasaki Kisen Kaisha has confirmed that ships in the Persian Gulf region are on standby.

If the conflict persists and shipping disruptions continue, the risk to LNG production will rise sharply—this industry needs stable exports to maintain fuel transportation, or it may be forced to cut production.

Dealers in India, Japan, and other regions are also preparing for price increases, which would reverse the relatively subdued price trends seen over the past year during periods of ample supply. Not only will spot prices rise—since long-term LNG contracts are usually linked to crude oil benchmarks, rising Brent crude prices will also increase natural gas costs for Asian consumers.

Japan’s largest LNG buyer, JERA, stated, “If Middle East tensions escalate or persist long-term, restrictions on oil tanker navigation could impact Japan’s gas supply. We will continue to leverage our trading advantages to ensure flexible fuel procurement.”

Turkey, which imports pipeline gas from Iran, could become another pressure point. Similar to Egypt, if ongoing conflicts disrupt key gas sources, Turkey may be forced to increase LNG imports, further driving up LNG prices.

Columbia University’s Center on Global Energy Policy data shows Iran exports natural gas to Turkey under a contract of 9.6 billion cubic meters annually, though recent deliveries have fallen below contractual levels.

“LNG transportation will continue to be disrupted, and traders should prepare for a temporary shutdown of Strait of Hormuz transit for several days,” said Leslie Palti-Guzman, founder of energy and shipping consultancy Energy Vista. “We are in uncharted territory.”