LNG Supply Crisis Pushes Buyers Toward Coal and Oil - Energy | PriceONN
The resumption of the Iran conflict, including the effective closures of the Strait of Hormuz and now the Strait of Bab el-Mandeb has driven up natural gas prices, particularly in Europe and Asia. Asia accounts for nearly 90% of liquefied natural gas (LNG) shipments from key Middle East producers like Qatar and the UAE, while Europe imports 7-11% of its LNG imports from the region. European gas prices surged to four-month highs amid fears the US-Iran war will cause winter shortages. As The...

Global Energy Flows Under Threat

A dramatic escalation of geopolitical tensions in the Middle East, marked by disruptions to critical shipping arteries like the Strait of Hormuz and Bab el-Mandeb, has sent shockwaves through global energy markets. The immediate casualty has been natural gas, with prices in key consuming regions like Europe and Asia experiencing a sharp upward trajectory. Asia, which relies on the Middle East for approximately 90% of its liquefied natural gas (LNG) shipments from major exporters such as Qatar and the UAE, finds itself particularly exposed. Europe, while less dependent, still sources between 7% and 11% of its LNG from this volatile region.

European gas benchmarks briefly breached the €60 per megawatt-hour (MWh) mark, a level not seen in four months. This surge reflects deep-seated anxieties about potential winter shortages, amplified by recent US military actions and Iranian retaliatory strikes. The fragile recovery of Qatari LNG exports, crucial for bolstering European storage during the summer, now faces significant delays. Industry analysts caution that sustained prices above €60 could necessitate costly government intervention to ensure energy security.

The impact on physical supply is stark. Since the conflict's onset on February 28th, only a fraction of the usual monthly LNG cargoes have successfully departed the Persian Gulf. Prior to the hostilities, these vital waterways were responsible for the transit of roughly 20% of global oil and gas. Adding to the supply chain woes, direct strikes on key LNG infrastructure, specifically Qatar's Ras Laffan LNG Trains 4 & 6 and Pearl GTL Train 2, have resulted in substantial capacity being sidelined for years. QatarEnergy estimates the loss of approximately 12.8 million tonnes per year of LNG capacity for three to five years from the Ras Laffan units, while Pearl GTL Train 2 requires a year-long repair. This damage compounds the existing shipping disruption concerns.

Shifting Demand and Market Reactions

The disruption to Middle Eastern supply routes has significantly impacted Asian spot markets. The Platts JKM, the benchmark price for LNG delivered to Northeast Asia, has climbed sharply, nearing levels last observed during the Ukraine war-driven spike in late 2022. This benchmark has seen a substantial increase from around $15 per MMBtu at the start of May to over $21 per MMBtu. Nations like India, Bangladesh, and Taiwan have been actively seeking alternative supplies on the spot market to cover the shortfall.

Traders and portfolio managers have responded with heightened activity, capitalizing on the increased price volatility. Trading volumes in the Asian physical LNG market saw a significant year-on-year jump in the first quarter of 2026, with a near doubling of transactions. The derivatives market experienced an even more dramatic surge, with trading volumes escalating by over 250% compared to the previous year. This frenzy highlights the market's scramble to adjust to the new supply realities.

The effects are particularly acute in South Asia. India, previously reliant on the UAE and Qatar for nearly 60% of its LNG imports, has seen a significant shift in its procurement strategies. Buyers are now tendering for prompt deliveries, seeking discounts, and shortening their forward purchase horizons from over 25 days to as little as 15 days. India possesses alternatives such as naphtha, fuel oil, and propane, which may become more attractive if their prices remain competitive relative to LNG.

The Bigger Picture

The current geopolitical crisis unfolds against a backdrop of rapid global LNG market expansion. Before the Middle East conflict, worldwide LNG supply was projected to grow by a healthy 11% year-on-year in 2026, driven by new capacity from the US and Canada. However, the lost Qatari and UAE supply effectively negates almost all of this anticipated growth, drastically reducing the projected increase to a mere 1% year-on-year. This represents a massive recalibration of global energy availability.

Demand destruction is already evident in countries like Pakistan, where LNG imports have plummeted by 75%, and South Korea, which has seen a 10% year-on-year decline in imports. South Korean regulators have even removed caps on coal-fired power generation to facilitate a shift away from natural gas. China is also experiencing a reduction in LNG imports, with gas-to-coal switching occurring there as well.

Looking ahead, two key factors will dictate market direction. The primary concern is whether LNG flows through the Middle East will normalize or if the situation will deteriorate further. While the market has shown some resilience since the initial shock, the potential for risk premiums to re-emerge remains high. The second critical indicator is the Asia-Northwest Europe arbitrage. This spread, along with freight costs, provides a real-time signal for where marginal LNG cargoes will be directed. A premium in Asia incentivizes flows eastward, while a narrowing or disappearing arbitrage may draw cargoes back to Europe.

European gas storage levels also warrant close observation. Following the government incentives in 2022 that led to record prices as countries like Germany scrambled to refill reserves, any failure to reach target fill levels by winter could trigger renewed policy interventions and price support. Ultimately, the conflict has forcefully reminded energy buyers and policymakers of the paramount importance of supply security. This experience is likely to drive a greater focus on diversification away from regions with tarnished reliability records and elevate supply security to the top of contracting and policy agendas, echoing the concerns seen in 2022.

Oil Natural Gas LNG EUR
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