European LNG Prices Hit Record High Due to Conflict in Iran

The price of liquefied natural gas (LNG) in Northwestern Europe has reached a three-year high, soaring to $22.83 per million British thermal units (MMBtu), more than double last year's level. As of Tuesday, the price has adjusted to $22.23. The main reason for the price increase has been disruptions in shipping through the Strait of Hormuz, which accounts for about 20% of global LNG supplies. In July, only 8 tankers passed through the strait, compared to about 3 vessels daily before the war. The Iranian administration of the Strait of Hormuz has threatened 46 vessels with fines and confiscation, including 10 LNG tankers on a blacklist. The gas market is more vulnerable than the oil market due to the complexities of LNG transportation. Stocks in European underground storage are below normal, with an injection level in August of 3 TWh compared to 3.6 TWh last year. Storage in Germany is only 50% full. European importers are competing with buyers from Asia, driving up global prices. The Asian benchmark Platts JKM rose by 13% in August to $24.08 per MMBtu. Countries in South and Southeast Asia continue to purchase fuel even at prices above $20 per MMBtu. Goldman Sachs notes that to curb demand in Asia, prices in Europe must exceed €100 per MWh.

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