Due to the prolonged closure of the Strait of Hormuz, global liquefied natural gas (LNG) exports are severely disrupted, igniting a fierce competition for energy supplies across Eurasia.
"Any available spot cargo in the market is immediately snapped up by buyers," said Henik Fung, a senior analyst with Bloomberg Intelligence's global energy team, describing the intense competition in the current LNG spot market. He warned that even if the geopolitical conflict ends soon and the Strait reopens, the competition to replenish inventories over the next 3 to 6 months will remain very strong due to depleted stocks.
According to U.S. Energy Information Administration (EIA) data, approximately 20% of global LNG typically transits the Strait of Hormuz, with about 80% to 90% of that volume destined for Asian markets. The current Middle East situation has effectively "cut off" this supply. Meanwhile, while most of the European Union's natural gas imports come from outside the Middle East, the butterfly effect of this global supply disruption is forcing European buyers into intense competition with Asian buyers for the limited flexible LNG spot cargoes available.
As a result, data from the Intercontinental Exchange (ICE) shows that the Japan Korea Marker (JKM), the Asian gas benchmark, has risen 65% since late February, while the Dutch Title Transfer Facility (TTF) price, Europe's benchmark, has surged nearly 60%.
Explaining the underlying logic of this commodity price surge, Roukaya Ibrahim, Chief Commodity Strategist at global investment consultancy BCA Research, stated that as globally observable official oil inventories are drawn down to historical extremes, the "safety cushion" available to consumers and market institutions will shrink dramatically. This will inevitably force a sharp upward revision in the price centers for crude oil and natural gas to hedge against the risk of strategic reserves being depleted.
Europe faces a severe test in replenishing its storage for winter. It is now certain that European countries will start their stockpiling process earlier than usual. Fung told reporters that European natural gas inventories are at multi-year lows, and the EU has warned member states of a significantly larger LNG supply gap this year. Consequently, countries are being forced to plan ahead, starting preparations for winter storage as early as March and April.
However, actual inventory data is not encouraging. According to data from the Swiss Federal Office of Energy, as of the latest update on May 15, storage levels at EU natural gas facilities were only 36.1% of capacity, a full 13.4 percentage points below the five-year average (49.5%).
The EU generally requires storage levels to reach 90% before the heating season. EU law allows for a 10-percentage-point deviation from this target, with an additional 5 percentage points of flexibility in extremely adverse market conditions. However, the European Union Agency for the Cooperation of Energy Regulators (ACER) recently warned that EU countries are unlikely to meet the legal requirement of filling storage to 90% of capacity before this winter, likely reaching only a lower level of 80%. Achieving even this level "is likely to come at a high premium cost" and, due to the lack of buffer, leaves the system highly vulnerable to subsequent supply disruptions. The agency estimates that to reach 90% storage, the EU would need to increase LNG imports by 13% compared to 2025.
Faced with high costs and a tight supply chain, industry associations like Eurogas and the International Association of Oil & Gas Producers (IOGP) have called for the EU to grant more market flexibility in meeting this season's gas storage targets to avoid excessive market pressure during the summer injection season.
Simultaneously, Europe's dependency on a single supplier has resurfaced. Since 2021, Europe's LNG imports from the United States have tripled. Last year, 58% of the region's LNG came from the U.S., accounting for roughly 25% of its total gas consumption. ACER explicitly warned that the EU's high dependence on U.S. LNG could raise serious concerns about reliance on a single supplier.
"The transoceanic bidding war between European and Asian economies is not only inevitable but has already begun," Ibrahim told reporters.
Ibrahim further explained the transmission mechanism of this competition. Geographically, about 90% of the LNG exported via the Strait of Hormuz flows to Asia, giving Europe minimal direct physical exposure. This suggests that, on the surface, Europe might seem relatively "insulated" from this supply disruption. However, the natural gas spot market is highly globalized. The Japan Korea Marker (JKM), Asia's pricing benchmark, and the Dutch Title Transfer Facility (TTF), Europe's core pricing hub, have recently shown synchronized sharp increases.
In her view, the reason behind this is the ongoing "chain reaction": extreme shortages in Asia have triggered fierce competition for global cargoes, which has already diverted some resources originally bound for Europe. For example, U.S. LNG carriers originally destined for European ports, along with some refined crude oil exports from the U.S., have been rerouted to Asia, lured by higher premiums from Asian buyers.
Fung analyzed: "In this context, European buyers will inevitably turn to the United States for alternative supplies. The problem is that U.S. liquefaction facility utilization is near saturation, and Australian capacity is largely locked into long-term contracts with Asia. Therefore, even if the Strait of Hormuz reopens, the tight supply situation will be difficult to fundamentally reverse in the short term. Entering summer, with a surge in demand for power generation and air conditioning, LNG demand will further strengthen."
Based on this assessment, Fung expects the Asian LNG spot price JKM to fluctuate sharply in the range of $15 to $20 per million British thermal units (MMBtu) in the near term. If the conflict remains unresolved, the price center will continue to shift upward.
More concerning is the medium- to long-term structural gap. Fung stated that from a long-term perspective, the demand for uncontracted LNG in the Asian market is growing continuously between 2027 and 2030. Typically, downstream companies lock in about 75% of their demand through "take-or-pay" agreements. However, some companies previously anticipated an oversupply in the Asian LNG market and thus did not fully hedge or sign long-term contracts. As the gap between actual consumption and contracted volumes widens year by year over the next four to five years, filling this gap will become a challenging problem.
The impact could surpass the previous energy crisis. Looking at the long-term scenario, Fung believes the severity of the LNG shortage shock facing Europe and Asia this time may exceed that of the 2022 energy crisis. He explained: "The 2022 Russia-Ukraine conflict primarily caused a severe shock to the European energy market, but the turmoil in the Middle East carries a stronger global premium. More critically, the current market does not seem fully prepared for this, lacking psychological anticipation for sudden supply disruptions."
Furthermore, the physical damage to core suppliers cannot be ignored. Fung added that while Russian supply was disrupted in 2022, the production facilities of Qatar, one of the world's core LNG suppliers, have been damaged in the current conflict, directly paralyzing about 20% of global supply capacity. This scale of hard supply loss could have a far greater negative impact on the global economy than in 2022.
Ibrahim also noted a clear difference between the current natural gas and oil markets. Since the Middle East situation erupted, gas shipments passing through the Strait of Hormuz have essentially dropped to zero, whereas in oil, the market still sees some sporadic shipments continuing. There is currently no "diversion" mechanism in place for natural gas. In contrast, oil has existing pipelines in the United Arab Emirates, Saudi Arabia, and Iraq, which somewhat alleviates supply pressure.
"What I think all this means is that as long as the Strait remains blocked, the gas market is likely to stay tight," Ibrahim said. Given that QatarEnergy's LNG facilities have already been damaged and attacked, the supply disruption could be quite prolonged in terms of its time span.
However, she also noted that regarding the future evolution of the gas market, the good news is that a considerable amount of new LNG capacity is scheduled to come online in the coming years, starting from the second half of this year. This should alleviate some of the immediate pressure on the gas market.
Based on this, Ibrahim believes: "This means prices will remain elevated for a period, but unless this supply disruption becomes more protracted, I don't foresee another massive price spike. Because over time, new LNG capacity from other parts of the world will enter the market, providing a hedging effect."
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