The strategist predicts that the liquefied natural gas market will remain "very tight for at least a month"

Investing.com - Since the United States and Israel launched attacks on Iran, energy markets have surged significantly, mainly due to the closure of the Strait of Hormuz. The Strait of Hormuz is a critical shipping route handling about 20% of the world’s liquefied natural gas (LNG) flow.

European benchmark natural gas futures at the Netherlands Title Transfer Facility (TTF) soared nearly 70% this week, currently trading at around €53.25 per megawatt-hour, while Asian JKM benchmark prices jumped 45%.

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After Iran’s drone attacks on Ras Laffan Industrial City and Maysan Industrial City, Qatar, one of the world’s largest LNG exporters, halted production on Monday, increasing supply risks. Goldman Sachs analysts estimate that the production suspension will reduce global LNG supply by about 19% in the near term.

Shortly afterward, a senior officer of the Iranian Revolutionary Guard announced that Iran has closed the Strait of Hormuz to all ships and warned that vessels attempting to pass through the waterway will face attack.

“Since the attacks this weekend, ships have started to avoid the strait, and the actual reduction in LNG flow will begin to show in supply and demand balance over the coming weeks,” Florence Schmit, senior energy strategist at Rabobank, told Investing.com.

“Restoring production at oil and gas fields takes up to two weeks, and with energy flows unable to pass through, this means the LNG market will remain very tight for at least a month (and possibly longer, given the current attack situation),” she added.

Compared to the U.S., most of Europe and Asia are more vulnerable to potential natural gas price shocks. The U.S. benefits from large-scale domestic shale gas production and LNG export capacity.

When asked whether the LNG disruption might trigger another cargo scramble between Asia and Europe, Schmit said, “It’s very likely, similar to 2022. This is already reflected in the JKM-TTF spread, which has shifted to a premium for JKM over TTF since this weekend.”

“Asia heavily relies on Qatar’s LNG, and reduced flow is forcing major buyers like South Korea, Japan, and China to seek alternatives. The U.S. is the only feasible option here, with abundant spot supplies, but it is also a major supplier to Europe. Given the limited LNG available on the market, competition between Europe and Asia for U.S. cargoes will be fierce,” she continued.

Schmit emphasized that Europe “is very vulnerable to disruptions in Middle Eastern energy supplies,” noting that LNG currently accounts for about 40% of the region’s natural gas demand, meaning any tightening of global supplies could directly impact domestic prices.

Goldman Sachs warns that prolonged disruptions could push prices much higher. In a report released Monday, the bank stated that a one-month halt in flow through the Strait of Hormuz could push TTF and JKM prices to €74 per megawatt-hour ($85.80)—a level that triggered significant gas demand responses during Europe’s energy crisis in 2022.

In another report, Goldman Sachs raised its forecast for April TTF prices from €36 per megawatt-hour ($41.73) to €55 ($63.75). The bank also increased its quarterly average forecast to €45 ($52.16) per megawatt-hour.

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