Summary of Key Points
In the first half of 2026, the international natural gas market experienced severe fluctuations due to the closure of the Strait of Hormuz caused by the US-Israel-Iran conflict: natural gas prices in Eurasia soared (32% in Europe and 45% in Asia), while prices in the United States declined despite increased production; the supply impact was limited (new and existing projects compensated for the shortage, with global LNG trade volumes still increasing by 1%); there were clear divergences among the US, European, and Asian markets (the US increased production and exports, Europe faced import pressures, and Asia saw declining demand); overall global natural gas demand decreased by 0.5%, marking the third annual decline in a decade.
I. Surge in Prices in Eurasia, Decline in the US – The Strait of Hormuz as the Main Culprit
The Strait of Hormuz is a critical route for LNG transportation, accounting for one-fifth of global maritime LNG shipments. After its closure in March 2026, natural gas supply to Eurasia plummeted, leading to skyrocketing prices:
- Europe: The Dutch TTF price (the European natural gas benchmark) increased by 32% year-on-year, with volatility reaching nearly 170% in March (价格的 fluctuations were more extreme than on a roller coaster); although it declined in the second quarter, it was still 23% higher than the ten-year average.
- Asia: The Japan-Korea index (the Asian LNG price benchmark) rose by 45% year-on-year, with volatility soaring to 300% in March. Asian prices surpassed European prices by $2.1 per million British thermal units, causing some LNG that was originally destined for Europe to be redirected to Asia.
- United States: The Henry Hub price actually fell by 7.5% due to increased domestic production (4% increase in the first half of the year) and sufficient inventory, meaning the US was not significantly affected by the Strait of Hormuz closure.
*In simple terms*: It’s like a market where suddenly one-fifth of the suppliers disappear, and buyers in Eurasia compete for the remaining goods, driving up prices; the US, with its own abundant supply, saw stable or even lower prices.
II. The Supply Impact Was Not as Severe as Expected – New and Existing Projects Stabilized the Market
The closure of the Strait of Hormuz resulted in a 32 billion cubic meter reduction in LNG supply from the Middle East, but global LNG markets did not experience a complete disruption:
1. Secret Shipping: Some LNG carriers from Qatar and the UAE bypassed the blockade and transported goods through the strait, with 20 shipments in May and June.
2. New Projects Contributed: New projects in North America (the US Prakmimes project) and Africa (the Senegal floating LNG project) added 25 billion cubic meters to supply.
3. Reactivation of Old Projects: The Malaysia Bintulu project (which had been out of service for maintenance last year) and the Norway Hammerfest project resumed operations, along with increased exports from Nigeria, compensating for the shortfall by 13 billion cubic meters.
*Overall Result*: Global LNG trade volumes increased by 1% (2.5 billion cubic meters) in the first half of the year, maintaining a basic balance between supply and demand.
III. Divergent Markets among the US, Europe, and Asia
1. The US: Increased Production for Higher Profits
- Record High Production: Dry gas production increased by 4% in the first half of the year, with the Permian Basin (a major source of associated gas) playing a key role. However, pipeline capacity was insufficient, leading to negative prices at the Waha hub (selling gas at a loss).
- Surging Exports: LNG export volumes grew by 23%, and terminal utilization reached 104% (operating at full capacity with additional projects set to start up in the second half of the year).
- Domestic Demand Fluctuations: Winter heating demand decreased, with residential gas usage falling by 6.5%, but power generation demand increased by 1.5% as natural gas is cheaper than coal.
2. Europe: Stable Imports but Under Pressure for the Year
- First-Half Imports: Imports were flat, with a 10% increase in the first quarter and a 10% decrease in the second quarter (due to Asian demand).
- Second-Half Challenges: A ban on short-term Russian LNG contracts will take effect in April, followed by a ban on Russian pipeline gas in October, expected to lead to a 4% reduction in annual imports.
3. Asia: Declining Demand and Shift to Alternative Fuels
- Overall Demand Drop: High prices after the Strait of Hormuz closure prompted countries to switch from natural gas to other fuels.
- China: Imports decreased by 5%, and domestic production growth slowed (from 6% to 3%), with coal-based gas production filling the gap.
- Japan: Nuclear power generation resumed, reducing natural gas demand by 5%.
- South Korea: Increased natural gas usage during nuclear plant maintenance, but overall demand still fell by 1% due to a shift to coal.
- India: Demand decreased by 8%, especially in the fertilizer and petrochemical sectors, although residential gas usage increased by 12% (government measures to support consumers).
IV. Global Demand Decline, with Varying Regions
Global natural gas demand fell by 0.5% (20 billion cubic meters), marking the third annual decline in a decade:
- Middle East: The first annual decline of 4% due to war-induced damage to infrastructure and reduced associated gas production.
- Europe: Decrease of 2% due to the growth of renewable energy and higher natural gas prices.
- Asia: Decline of 0.5% due to the impact of the Strait of Hormuz closure and the switch to alternative fuels.
- Americas: Increase of 3% due to reduced hydropower generation and increased use of natural gas for power production.
- Eurasia: Increase of 3% mainly due to colder weather in the first quarter, leading to higher heating demand.
*In Conclusion*: The conflict disrupted the global natural gas market, but new projects and market mechanisms ensured supply continuity. However, price and demand patterns have become significantly differentiated. In the coming six months, oil prices (with a lag of 5–6 months) and Europe’s ban on Russian gas will continue to influence market trends.