Just a month ago, Europe was attracting most LNG spot cargoes as solid demand and fast-depleting gas inventories fetched higher prices than in Asia, where demand was lackluster.<\/p>\n
A month is a long time in today\u2019s geopolitical order and this week the global gas market was jolted into a massive shock that upended supply and demand trends.<\/p>\n
Qatar\u2019s halt of LNG production<\/a> and the de facto closure of the Strait of Hormuz roiled Asian and European gas markets with reminders of the 2022 crisis.<\/p>\n While Asia receives the overwhelming majority of Qatari LNG, Europe is feeling the effect of the Hormuz crisis as acutely as Asia as the global market tightens, and the Asian LNG price premium over European prices soars, re-directing the available spot supply to the Asian importers.<\/p>\n \u201cThere\u2019s no spare capacity in the LNG market, so the disruption could be immediate and immense,\u201d Claire Jungman, Director of Maritime Risk & Intelligence at energy market analytics firm Vortexa, said earlier this week, as carried by Reuters<\/a>.<\/p>\n Related: Trump\u2019s Secret Weapon in the Rare Earth War<\/a><\/p>\n LNG shipments from Qatar and the United Arab Emirates (UAE), which jointly account for about 20% of global LNG supply, are now off the market, after QatarEnergy announced a pause to LNG production at its Ras Laffan hub and no tankers pass through the Strait.<\/p>\n As traffic via the Strait of Hormuz is effectively closed, the LNG supply shock to Asia is immediate, with Europe feeling the secondary effects of 20% of global LNG supply offline.\u00a0\u00a0\u00a0\u00a0\u00a0<\/p>\n As a result, both Asia\u2019s spot LNG prices and Europe\u2019s TTF benchmark gas prices have soared in recent days to multi-year highs.<\/p>\n A total of 85% of Qatar\u2019s LNG exports go to Asia, so the immediate physical supply crunch is skewed toward Asia, says<\/a> Florence Yu, Associate LNG Market Analyst at Vortexa.<\/p>\n \u201cChina, India, and Taiwan are among the importers most exposed to this risk,\u201d Yu added.<\/p>\n Europe has typically received about 12% of Qatari LNG\u2014a much smaller share compared to Asia\u2019s exposure.<\/p>\n However, the repercussions of a supply squeeze in Asia are huge for Europe, too, as Europe currently loses the competition with Asia for alternative spot supply as the Asian premiums over European prices soar and arbitrage is giving the strongest signal for traders to send LNG cargoes to Asia since the end of 2022.<\/p>\n The JKM-TTF spread, measuring the premium of Asian spot LNG prices to Europe\u2019s gas benchmark, surged to a multi-year high of over $6 per million British thermal units (MMBtu) on Tuesday.<\/p>\n LNG freight rates are also surging, recording the largest-ever one day jump on Tuesday in Spark Commodities assessments<\/a>. The arbitrage signal for Asia is now at its strongest since December 2022, according to Spark Commodities data. \u00a0<\/p>\n Further regional disruptions, such as Israel shutting down<\/a> offshore gas fields and exports to Egypt, are also tightening the global gas market and putting Asia and Europe under additional strain to procure any available spot LNG supply.<\/p>\n Related: The U.S. Just Took a Giant Step in The Rare Earth Race With China<\/a><\/p>\n The Asia-Europe race is only set to intensify in the coming weeks, and with the U.S. already exporting LNG to capacity even before the Middle East war, there isn\u2019t a single supply source to make up for a loss of 20% of global supply until the Strait of Hormuz reopens to tanker traffic.<\/p>\n \u201cUS LNG export infrastructure is already operating near capacity, limiting the ability of American exporters to meaningfully fill the gap,\u201d Amena Bakr at energy commodity analysts Kpler wrote in a note<\/a> earlier this week.\u00a0\u00a0<\/p>\n \u201cDisruptions to LNG flows would reignite competition between Asia and Europe for available cargoes, particularly at a time when European storage levels are below seasonal norms and around 10% lower than at the same point last year, following a severe cold spell in January,\u201d Massimo Di Odoardo, Vice President, Gas and LNG Research at Wood Mackenzie, said<\/a> earlier this week.<\/p>\n Around 1.5 Mt, or 2.2 billion cubic meters, of LNG exports are at risk for each week that flows through the Strait of Hormuz are halted, per WoodMac\u2019s estimates.<\/p>\n In view of the already massive disruption to global LNG supply \u201cboth Asian and European markets would need to draw more heavily on existing storage and would increase the need for restocking over the summer,\u201d Di Odoardo noted.<\/p>\n \u201cThis would tighten market conditions well beyond the eventual resumption of trade through the Strait.\u201d<\/p>\n By Tsvetana Paraskova for Oilprice.com<\/p>\n