Oil & Gas

Spot Liquified Natural Gas (LNG) prices in Asia surged to their highest level since January amid concerns of escalating conflict in the Middle East. After remaining relatively low throughout the winter heating season in the northern hemisphere, spot LNG prices for delivery into North Asia spiked recently due to fears that an Israeli response to an Iranian attack could lead to a broader regional conflict. Such a conflict could potentially disrupt LNG cargo flows, particularly through the strategic Strait of Hormuz, where 20% of the world's LNG trade passes.

Despite analysts viewing the likelihood of the Strait of Hormuz being blocked as low, spot LNG prices for delivery into North Asia climbed above $11 per million British thermal units (MMBtu) on Tuesday, according to traders cited by Bloomberg. This represents a 40% increase since the end of February and marks the highest spot LNG price in Asia since early January 2024.

European natural gas prices also rose sharply on Tuesday, closing 6.4% higher and marking a fourth consecutive daily increase. The front-month Dutch TTF futures, Europe's gas trading benchmark, rose by another 1.6% early on Wednesday to reach the highest level so far this year.

Europe has increasingly relied on LNG imports for its gas supply after losing a significant portion of Russian pipeline gas due to Moscow's halt of flows to several EU countries and the sabotage of the Nord Stream pipelines. European prices have been further impacted by lower pipeline flows from Norway, which is now Europe's top gas supplier, due to unplanned outages.

While the geopolitical environment supports higher European gas prices, analysts note that fundamentals remain bearish, with storage levels exceeding the 5-year average for this time of year. Despite these challenges, concerns about potential disruptions to LNG flows continue to keep both European and Asian gas markets on edge.