Since early September, international natural gas prices have climbed sharply. While crude oil has breached the psychological $100-per-barrel threshold, gas has surged even more aggressively, with current trading levels approaching the oil-equivalent of nearly $150 per barrel.

Market analysts indicate this rally is no accident. For months, warnings have been issued about critically low European gas inventories, with the region needing to compete directly with Asian buyers to secure supply for the winter heating season. However, these alerts went largely unheeded, as winter forward prices remained roughly in line with summer contracts. This gave traders little incentive to purchase and store gas over several months, while governments sought to maintain stable market expectations. As winter approaches, the market focus has shifted dramatically.

More critically, there is growing recognition that no clear solution exists for liquefied natural gas trade transiting the Strait of Hormuz, with potential shipping disruptions possibly extending indefinitely. The LNG outlook appears more bleak than that of crude oil, as market sentiment has pivoted from anticipating a recovery to fearing long-term supply interruptions. Among the many commodities affected by the Middle East conflict, LNG has suffered the most severe impact.

Less than 10% of pre-conflict shipping volumes are able to pass through currently. LNG carriers, given their massive size, high cargo value, and severe consequences of any attack, present an excessively high risk. In contrast, the U.S. government has demonstrated determination since August to push crude oil back onto the market, with Middle East oil flows already increasing significantly. This aligns with the political interests of the Trump administration in curbing gasoline prices ahead of the November midterm elections. The current conflict essentially represents a power struggle between Iran and the U.S. over oil flow control, with LNG left on the sidelines.

Unlike oil, pushing Middle East LNG into the market is not a U.S. priority, as it would compete directly with American exports. In fact, the absence of Middle East LNG this summer may have prevented a price collapse, as surging U.S. LNG export volumes continue to need buyers.

Notably, elevated international gas prices are unlikely to transmit to American consumers. U.S. gas prices remain below $4 per million British thermal units, less than one-fifth of international LNG prices. In short, the U.S. faces oil supply disruption risks but does not bear the impact of LNG interruptions.

If LNG remains excluded from the market, where could prices go? Current levels are around $25 per million British thermal units, with reports suggesting LNG purchase option strike prices have exceeded $30 per million British thermal units. While high and set to increase household and factory bills, this remains well below the $50 to $75 per million British thermal units seen during the 2022 crisis. Those 2022 price levels, along with resulting consumer subsidy protections, contributed to current sovereign debt challenges and bond market pressures.

Industry consensus holds that the extreme 2022 price levels will not recur. This winter will see a tug-of-war over supply between Europe and Asia, with competition intensity partially dependent on weather conditions. Cold temperatures and "windless" weather reducing wind power output would boost gas demand. However, the situation of summer 2022, when Europe filled storage at any cost following Russian pipeline gas disruptions, will not repeat itself. Over the past six months, the gas market has shown remarkable resilience, but the biggest test may still lie ahead. System redundancies are extremely limited, yet careful planning could still avoid a repeat of the 2022 price surge.