Why are Global Gas Prices not Higher? 

Natural gas prices in the current energy crisis are far lower than in the 2022 crisis—why is this? The new LNG supply wave that had been forecast to lead to a glut and falling prices in 2026 has in fact been a price stabiliser. Meanwhile Asia has chosen the pill of pre-emptive closures rather than wait for price to force curtailment. Given relatively tame prices, the EU has been something of a free-rider. This may change in July as the EU addresses an impending need to begin steep storage injection. Claims that Europe is ‘better prepared’ are dangerously misleading. 

The blockage of the Strait of Hormuz was expected to cause a crisis across commodities ranging from oil, LNG, ammonia, helium, through to sulphur. More than four months on, the news focus is currently on jet-fuel stocks in Europe and gasoline prices in the US. The prices of urea (fertilizer) and sulphur are largely overlooked but remain sky-high. 

In contrast, international gas and LNG prices are relatively tame. If the closure of the Strait is following the worst-case of supply disruption scenarios, the gas price is perversely closer to the least-bad case. As of early July, European wholesale prices were $14 per MmBtu and Asian LNG prices were $16 per MmBtu. To be sure, these prices are painful for many industries and businesses. Households will also feel the pain in due course as costs are passed through. The prices add to inflationary pressures on many governments. Nevertheless, it is surprising that prices are not significantly higher, for two reasons. 

Firstly, gas prices rose much higher during the energy crisis of 2022. Average monthly prices were above $25 per MmBtu for the entire year. During the crunch months of August and September 2022, prices soared above $60 per MmBtu. And yet the volume of supply disruption in 2022 was not greatly different from that in 2026; in fact slightly less.

*** The supply loss from Russian pipeline gas in 2022 averaged 6.5 BCM per month. In the months of September and October the loss was 8 BCM per month (year-over-year). 

*** The supply loss from the blockage of the Strait of Hormuz in April and May 2026 was almost 9 BCM per month (approximately 6.5 Mmt per month of LNG). 

To paraphrase Einstein, the same thing is happening but with different results. Good news to an extent for gas consumers, but enough to make price forecasters and traders want to tear their hair out. 

Secondly, during the 2022 crisis gas prices far exceeded oil prices. But in April of this year international gas prices were at a 30 percent discount to oil, and an even greater discount to most oil products. As a result, there has been little scope to contain gas demand by switching to oil products. If anything one would expect factories that can switch between fuels to be switching away from oil to gas. 

Moreover the oil market benefited from the largest strategic stock release in history which should have helped moderate oil prices. The 400 million barrels released by the IEA is the equivalent of about four weeks of disrupted supply through the Gulf. Gas had no similar supply injection into the market. And yet it is the gas market that has been the more restrained this time round. 

Those who see prices as a type of thermometer reading on the state of the market have declared the gas crisis effectively over. But today’s prices tell us little about tomorrow and can change rapidly. We need to understand the underlying factors at play.