European liquefied natural gas (LNG) prices have climbed to their highest level in over three years this week, as the impact of Middle East conflict on global energy supply chains deepens. Disruption to the Strait of Hormuz, combined with low European storage levels, has sharply intensified concerns over winter supply tightness.
According to data from Argus Media, spot LNG prices in Northwest Europe rose to $22.83 per million British thermal units earlier this week, more than double the level from a year ago and the highest since January 2023. Meanwhile, the Asian LNG benchmark Platts JKM has gained 13% so far in August.
The price surge is transmitting multiple pressures through the market, with European and Asian buyers competing for limited cargoes and further pushing up global prices. In a research note released on Sunday, Goldman Sachs warned that European benchmark gas prices would need to rise above 100 euros per megawatt-hour to "more significantly curb Asian LNG demand." With current contract prices hovering around 66 euros per megawatt-hour, this suggests there remains considerable upside for prices.
Hormuz Disruption Brings LNG Shipping to a Near Standstill
Middle East conflict has served as the direct trigger for this round of LNG price gains. The Strait of Hormuz typically carries roughly one-fifth of global LNG supply, but transit vessel numbers have plummeted since the outbreak of hostilities. According to Kpler data, only eight LNG carriers sailed through the strait in July, compared with an average of about three vessels passing daily before the conflict.
The situation deteriorated further this week. Iran's Persian Gulf Strait Authority threatened on Sunday to impose fines or confiscation penalties on dozens of vessels, with a blacklist covering 46 ships including 10 LNG carriers. Martin Senior, head of LNG pricing at Argus, noted that market confidence in a near-term resumption of Hormuz transit is weakening.
Compared with crude oil, natural gas shipping has suffered a more direct impact. Crude tankers are relatively versatile, with some vessels still departing the Gulf in recent months. LNG transport, however, relies heavily on specialized ships and supporting infrastructure. Once a critical waterway is blocked, alternative shipping options are far more limited, making supply disruption risks significantly higher.
Low European Storage Levels and Lagging Refill Progress
Europe is emerging as one of the most vulnerable markets in this supply shock. Before the conflict erupted, European gas inventories were already below seasonal norms. Since then, Europe has further slowed injection rates to maintain current supplies, causing refill progress to lag persistently.
According to Gas Infrastructure Europe data, Europe's average daily net gas injection in August was just 3 terawatt-hours, below the 3.6 terawatt-hours recorded during the same period last year. German storage facilities are currently only about 50% full. Under German regulations, if private companies fail to fully utilize booked storage capacity, the government is required to step in to purchase gas and store it.
The risks posed by low inventory levels have been flagged by the market for several months. Meanwhile, natural gas futures prices for the coming months remain broadly flat, further compressing the arbitrage window for building stocks in the off-season and selling at higher prices in winter, which also weakens traders' incentive to proactively replenish inventories. As winter approaches, the market is closely watching whether European policymakers will intervene.
Asian demand represents another key variable determining the direction of global gas prices. In the early stages of the conflict, Asian buyers proactively reduced LNG imports, which to some extent alleviated the scramble for cargoes between Europe and Asia. However, as the situation persists, Asian economies have seen their willingness to purchase gas rebound, and the global LNG supply-demand gap is tightening further.