By: AGBI

Prices for gas surged on Monday as Iran’s effective closure of the Strait of Hormuz sent importers scrambling to secure alternative supplies and Qatar halted production of liquefied natural gas (LNG) after Iranian drones struck its facilities.

About one-fifth of global liquefied natural gas supplies pass through the strait, nearly all of which is from Qatar, the world’s third-largest LNG exporter, en route for major economies in the Far East.

“There’s no immediate replacement,” said Anne-Sophie Corbeau, a gas market specialist at the Center on Global Energy Policy in Paris. “For the past four years, almost all LNG producers have been running at maximum export capacity. There’s no spare capacity anywhere.”

Gas is a major fuel considered central to the transition toward lower carbon economies. 

Prices vary by continent. European gas prices surged 42 percent on Monday, hitting a 12-month high of €45.5 per megawatt hour. Henry Hub, the US benchmark, rose 5.6 percent and East Asia’s JKM rose 1.1 percent.

Europe bought nearly 22 percent of Qatari LNG exports in 2024, according to AGBI calculations based on the most recent World Bank data.

Corbeau predicted rising gas prices on Monday “because everyone will be scrambling for spare cargo,” she said.

“European stocks are really low because of the winter, far lower than they’d normally be at this time of year,” said Corbeau. “Many Asian countries are dependent on LNG cargoes.”

Qatar’s government on Monday said Iranian drones had struck Ras Laffan, which is home to the country’s LNG production facilities, and a water tank at a power plant. State-owned Qatar Energy later announced it halted LNG production following the attacks.

Separately Iran says it has closed the Strait of Hormuz to shipping as part of a response to US-Israeli attacks on the Islamic Republic that killed supreme leader Ayatollah Ali Khamenei over the weekend.

Iranian drones and missiles have struck multiple military and civil targets across the region, including in the UAE, Saudi Arabia, Kuwait, Qatar and Bahrain.

“In the longer term, [gas] prices will depend on how long this conflict will last,” said Corbeau.

Massimo Di Odoardo, vice president responsible for gas and LNG research at  the consultants Wood Mackenzie, said the gas price surge would probably be less extreme than a similar spike following Russia’s invasion of Ukraine in 2022. That conflict led Europe to largely halt Russian pipeline gas imports.

“A blockage in the Strait could be viewed as temporary, tempering the upside,” said Di Odoardo.

Both Asian and European markets are likely to need to draw heavily on existing storage and to increase restocking over the summer, so “this would tighten market conditions well beyond the eventual resumption of trade through the strait,” he said.

Qatar shipped 77.2 million tonnes of LNG in 2024, or 19 percent of the global total of 411 million tonnes, the International Gas Union estimates. Only the US and Australia exported more.