LNG Supply Crisis Pushes Buyers Toward Coal and Oil

United States Natural Gas Fund (AMEX:UNG) climbed 1.14% to 9.74 dollars, still sitting closer to the bottom of its 52 week range of 9.54 to 12.23 and carrying a soft RSI of 34.95, even as global gas markets get squeezed by what traders are now calling an outright lng supply crisis stemming from the Iran conflict. The disconnect between a struggling domestic fund and surging overseas prices says a lot about where the real pain is being felt.

Why an LNG supply crisis in the Middle East barely moves a US fund

UNG tracks natural gas futures tied largely to US production and domestic storage, not the seaborne LNG cargoes now caught in the crossfire between Iran, the Strait of Hormuz and the Strait of Bab el Mandeb. Those two chokepoints normally carry a huge share of global energy trade. Roughly 20% of the world's oil and gas once moved through Hormuz before the conflict flared again, and Bab el Mandeb typically handles about 7% of global oil output. With both effectively closed off in practice, the physical squeeze is landing hardest on Asia and Europe, the two regions most dependent on Qatari and Emirati cargoes, while US supply keeps flowing largely unbothered into a market that is, if anything, comfortably stocked.

That gap explains why UNG's RSI near 35 suggests the fund is oversold territory territory rather than riding any panic premium. Traders pricing US natural gas futures are watching domestic weather and storage injections, not tanker routes near Bahrain and Kuwait.

Four month highs in Europe and a shrinking storage cushion

The Dutch gas benchmark, Europe's main pricing reference, briefly topped 60 euros per megawatt hour this week, a level not far from the peaks hit at the start of the US Iran war. That spike followed an expanded US aerial campaign and Iranian retaliatory strikes on Bahrain and Kuwait. Analysts at Independent Commodity Intelligence Services warned that sustained prices above that 60 euro threshold could force governments into costly intervention just to protect supply security heading into winter.

European storage sits at less than 54% full right now, compared with 64% at the same point a year earlier. ICIS also found that only 26 LNG cargoes managed to leave the Gulf since the conflict resumed on February 28, versus the usual 90 to 100 per month. That is a collapse in flows that no amount of demand discipline can fully offset before the cold months arrive.

Physical damage is compounding the shipping disruption. Iranian strikes this spring hit Ras Laffan LNG Trains 4 and 6 along with Pearl GTL Train 2. QatarEnergy, which owns Ras Laffan, estimates repairs will keep about 12.8 million tonnes per year of LNG capacity offline for three to five years. Pearl GTL's co owners, Qatar Energy and Shell (NYSE:SHEL), expect a year long outage on Train 2 alone.

Asian spot prices spike as buyers scramble for cargoes

The Platts JKM benchmark, which prices spot LNG delivered into Japan, South Korea, China and Taiwan, climbed close to the mid 25 dollar per MMBtu range, its highest since December 2022 during the Ukraine war disruption. It has risen from roughly 15 dollars in early May to 21.35 dollars as of this writing. India, Bangladesh and Taiwan were named among the importers most exposed to lost supply, pushing them into the spot market for replacement cargoes.

Trading activity has followed the price. Physical LNG transactions reported through the Platts Market on Close process rose 77% year over year to 62 deals in the first quarter of 2026, up from 35 a year earlier, according to S&P Global price reporter Cindy Yeo. Derivatives volumes jumped even harder, up 251% year over year, as portfolio players chased volatility and arbitrage.

India's exposure has been especially sharp. The country sourced almost 60% of its LNG from the UAE and Qatar before the war, and the spread between JKM and India's West India Marker benchmark collapsed as soon as fighting began, according to senior price reporter Suyash Pande. Since then Indian buyers have shortened their purchase windows, moving from booking cargoes more than 25 days ahead to just 15 or 20 days out, while also weighing switches to naphtha, fuel oil and propane where those fuels are cheaper and available.

Demand destruction spreads from Pakistan to South Korea

James Taverner, executive director for global gas and LNG research, points out that the war arrived just as global LNG supply was set to expand quickly. Before the conflict, global LNG supply was projected to grow about 11% year over year in 2026, driven largely by new US and Canadian projects ramping up. Lost Qatari and Emirati output has wiped out nearly all of that expected growth, leaving Taverner's team forecasting closer to 1% growth for the year instead.

Asia has absorbed most of the shock since about 90% of the LNG that transited Hormuz last year was headed there. Pakistan's LNG imports have dropped 75%, the steepest decline Taverner flagged. South Korea's imports are down roughly 10% year over year, and regulators there have lifted caps on coal fired power generation to allow more switching away from gas. China's LNG imports are down 8% year over year, with gas to coal substitution underway there as well.

What happens if European storage doesn't fill before winter

Taverner also raised the risk of a strong El Nino pattern affecting rainfall and hydropower output, which would add another call on gas heading into the colder months. He drew a direct comparison to 2022, when European governments offered incentives to refill storage and Germany in particular saw prices spike to record levels as companies competed for cargoes. Policy support for storage has been limited so far this year, and Taverner warned that falling short of target fill levels by the start of winter raises the odds of government intervention and further upward pressure on prices.

Beyond the immediate scramble for cargoes, Taverner sees a longer term shift taking shape. Qatar and the UAE, once viewed as dependable suppliers, have had their reliability called into question, while US Gulf Coast export terminals carry their own hurricane risk. He expects the next round of long term LNG contracting to put security of supply back at the top of the list for buyers and policymakers, much as it did after the 2022 shock tied to the war in Ukraine.

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