Global gas markets are experiencing heightened volatility as prices spike in response to escalating tensions between Iran and Israel, even though underlying supply and demand fundamentals remain largely unchanged.
The latest flare-up, triggered by Israel’s strikes on Iranian sites on 13 June and subsequent retaliatory actions, has reignited concerns over the security of critical shipping lanes, particularly the Strait of Hormuz.
The Strait of Hormuz, a narrow waterway jointly controlled by Iran and Oman, is the sole maritime passage for vessels moving from the Persian Gulf to the open ocean.
It is a vital artery for global energy markets, with about 20 per cent of all liquefied natural gas (LNG) exports passing through it. Any disruption here could have severe consequences, making markets particularly sensitive to geopolitical risks in the region.
Lu Ming Pang, senior gas and LNG analyst at Rystad Energy, explains: “It’s in the best interest of all Middle Eastern countries to keep the Strait of Hormuz open and prevent any supply disruption.
“Recent regional conflicts have again rattled markets, as the Strait is a critical waterway through which about 20 per cent of global liquefied natural gas (LNG) exports pass.
“While the probability of disruption may be low due to past de-escalations, the severity of a 20 per cent supply disruption would be markedly high, making it prudent to factor in delivery risks from the region.”
Pang added: “It would be mutually beneficial for the US, its allies and Middle East LNG exporters to ensure the waterway remains open.
“This would prevent disruptions to Qatar and UAE LNG exports, which account for 27 per cent of all LNG imports to Asia and 8.5 per cent of all imports to Europe and avert unsustainable price spikes following a supply shock.”
Qatar and the UAE exported a combined 83 million tonnes of LNG last year, all of which must traverse the Strait of Hormuz.
Their cooperative relationship with Iran is seen as a stabilising factor, but the risk of significant supply interruption remains a market concern.
In Europe, the benchmark TTF gas price jumped 4.7 per cent to US$12.85 per MMBtu on 13 June, the day of the Israeli strikes.
Prices briefly peaked at US$13.42 per MMBtu on 16 June before settling back to US$12.85, marking a 6.3 per cent week-on-week increase.
The price surge was compounded by reduced Norwegian pipeline flows due to unplanned maintenance at the Kollsnes field, which has since returned to service.
Europe is also bracing for temperatures 3 to 5 degrees Celsius above normal for the next two weeks, potentially increasing cooling demand.
In Asia, spot LNG prices have mirrored European trends, rising 8.9 per cent to US$13.58 per MMBtu by 16 June. Warmer-than-normal temperatures are forecast across East Asia, with Japan and South Korea both expecting above-average heat through August.
However, high LNG inventories in Japan — up 11 per cent year-on-year — have so far tempered spot buying.
Meanwhile, in the US, Henry Hub prices have remained relatively stable, edging up slightly from US$3.65 to US$3.76 per MMBtu.
Strong production and robust storage injections have helped keep prices in check, despite increased feedgas demand at key LNG export facilities.
The current market reaction underscores the fragility of global energy supply chains in the face of geopolitical risk.
While the probability of a major disruption remains low, the potential impact of any interruption to flows through the Strait of Hormuz is substantial, making risk premiums a persistent feature of today’s gas markets.
