LNG markets tighten as Hormuz disruption expected to persist
Financial and commodity markets appear to have finally abandoned their hopes of a recovery in oil and gas flows through the Strait. LNG prices have shot up to multi-year highs.
Gas markets and industry analysts appear to have lost hope that the Strait of Hormuz could be reopened anytime soon, and major LNG benchmark prices have shot up to multi-year highs.
Prices for LNG delivered to northwest Europe (TTF) have moved above $23/MMBtu and cargoes priced in Asia (JKM) are nearing $24/MMBtu. Those prices are twice as high as pre-war levels and both benchmarks are at their most expensive point in four years for this time of year.
The June memorandum of understanding (MOU) between the U.S. and Iran led to a brief but significant gush of oil and gas out of the Persian Gulf, providing markets with a surge of supply that temporarily relieved pressure in Europe and Asia. But the renewed fighting in July and the partial reshuttering of the Strait of Hormuz once again cut off LNG flows.
Shipments of “LNG carriers halted for almost 3 weeks before resuming in late July, running dark,” shipping data-tracking firm Kpler said on August 19th.
At least two LNG tankers appeared to have conducted recent ship-to-ship transfers outside of the Strait of Hormuz, according to Bloomberg. The clandestine ship-to-ship transfers suggest some cargoes are moving through the waterway with extraordinary effort, but the volumes are a fraction of pre-war levels.
Transferring LNG to another ship is not nearly as easy as it is with crude oil. Bloomberg estimates that it may be the first instance in which a tanker from inside the Strait has transferred LNG to another tanker on the outside.
Market sentiment took a turn for the worse in mid-August. The Trump administration has flailed around with no coherent strategy, vacillating between airstrikes and attempted negotiations.
But the U.S. government’s decision to instead opt for economic warfare and a long-term siege of Iran finally seems to have killed off any hopes of a breakthrough in talks. The prevailing (many would say irrationally optimistic) belief in financial and commodity markets that the Strait would reopen in the near-term with exports returning to pre-war levels is all but dead.
“European and Asian gas markets find themselves in the high-priced part of yet another hope-disillusionment cycle of Middle East negotiation attempts,” Jan-Eric Fahnrich, a senior analyst at the Oslo-based Rystad Energy, said in an August 13th statement.
By late August, Rystad said it now assumes a lengthy outage as its base case, a switch from how it has framed the conflict in recent months. Rystad “sees a protracted stalemate as the most likely path over the coming months, with traffic through the Strait of Hormuz remaining near current depressed levels before beginning a gradual recovery,” the firm said.
Other industry leaders also do not expect LNG flows through the Strait to return any time soon.
“Well, we believe that the Strait of Hormuz will remain closed throughout 2026. So we could potentially be looking at an interesting market going forward for LNG and other shipping segments,” Marius Foss, CEO of Flex LNG, an LNG shipping company, told investors on a recent earnings call.
In late July, QatarEnergy once again extended force majeure on cargo deliveries for European and Asian customers, pushing the disruption into September. It remains unclear when those shipments can resume. Qatar was once considered to be a highly reliable supplier, but those days are gone.
A recent report from the Washington-based Center for Strategic and International Studies explores the challenges facing Qatar’s LNG industry, which faces reputational damage, physical destruction to key LNG units, and the increasing threat that export capacity remains offline for much longer than initially anticipated.
“The possibility that a large share of Qatari LNG remains unavailable for an extended period should not be dismissed,” the report said. “The Strait of Hormuz could remain unreliable. Ras Laffan could be struck again.”
With little chance of a swift reopening, gas markets could remain painfully tight as the northern hemisphere winter approaches. European gas storage is substantially lower than the average level for this time of year, raising the risk of a further price spike. Indeed, investment analysts say that prices will need to rise in order to attract LNG cargoes to the continent, in order for Europe to outbid Asia for scarce volumes.
“Going forward, we reiterate our view that, if Persian Gulf LNG exports do not rise further, whether with visible or dark SoH crossings, TTF at 65 EUR/MWh will not be enough for Europe to manage storage through winter,” Goldman Sachs analysts wrote in an August 23rd note to clients.
“Specifically, in a scenario where Middle East energy exports normalize only gradually through 2027, we estimate that Dec26 TTF would likely need to move above 100 EUR/MWh (assuming average winter temperatures), 110% above our 50 EUR/MWh base case, to more significantly discourage Asia LNG demand,” the investment bank added.
In other words, European prices are in for a dramatic rise later this year if Hormuz remains shut – a scenario that now appears increasingly likely.