Asian liquefied natural gas markets are pricing a supply shock that Europe is, for now, experiencing differently. Spot prices in Asia have climbed to their highest level since December 2022 as Middle East escalation and the closure of the Strait of Hormuz restrict supplies. The increase is deterring purchases by Asian buyers, while Europe is receiving price relief as cargoes divert away from Asia.
Cargoes for delivery to North Asia were assessed at $26.00 per million British thermal units (mmBtu) in the week ended September 11. Global liquefied natural gas prices have spiked to $30 per MMBtu following supply disruptions in the Middle East. Asia's spot prices this year have already nearly tripled to close to $30 per million British thermal units.
The rise has been sharp even by energy-market standards. Spot LNG prices are up 150% from $10.40 per mmBtu in the week to February 27. That is three times as much as the 50% rise in Brent crude futures over the same period.
The immediate constraint is the Strait of Hormuz, which remains closed. Its closure has created a bottleneck affecting approximately 20% of the world's natural gas supply. Qatar's LNG absence has also pushed spot prices to 45-month highs.
Asia is particularly exposed because its buyers depend heavily on the spot market. High prices are damping demand, though the scale of the reduction is unknown. The Strait of Hormuz will likely remain constrained through the year-end, leaving buyers to weigh costly prompt supplies against reductions in consumption.
Price-sensitive industries are already adjusting their fuel choices. Fertilizers, power and ceramics have been forced to turn towards cheaper alternatives including coal and fuel oil. Those fuels are more carbon-intensive than LNG, but their lower cost has become increasingly important as spot gas prices rise.
Europe has gained some relief from the same regional split, as LNG cargoes move away from Asian markets. The relief comes after Europe entered the period with low storage stocks. It remains unclear whether lower regional prices will be enough to offset those winter constraints.
Winter weather could intensify the pressure. If it is a colder winter than normal, LNG prices may reach $40/mmBtu. Prices at that level would probably result in some demand destruction, further limiting purchases among buyers unable to pass higher fuel costs on to customers.
The current tightness could ease as new export capacity is added. Industry forecasts indicate that 150 million to 200 million tonnes of new LNG production capacity will come online globally over the next four to five years. Energy analysts expect those additions to provide enough liquidity to bring prices back towards the $7 to $9 per MMBtu range.
That prospective supply offers little immediate certainty for Asian importers facing a closed Strait of Hormuz and missing Qatari LNG. The duration of the Middle East escalation, the timing of any recovery in Qatar's supply and the size of any further diversion towards Europe remain unknown.
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