The war hits natural gas harder than oil - LNG prices in Europe have increased by 85%, while oil prices have only increased by 55%.
At first glance, the Iran war appears to be hitting oil and gas with equal force, as missiles, drone strikes, and shipping disruptions disrupt the flow of goods through the Strait of Hormuz. But beneath this superficial symmetry lies a critical imbalance. The global gas supply chain has fewer diversions and less storage capacity than the oil market, making the consequences for gas consumers significantly more acute.
Key gas infrastructure – particularly liquefaction plants – is more complex and expensive to build and repair than its oil equivalents. This means that oil refineries can often resume operations more quickly than liquefied natural gas export hubs after a shutdown.
Since February 28, Asian LNG prices have risen by 143%, European benchmark gas prices have risen by 85%, while Brent crude oil prices have risen by 55%. The prices have made the imbalance clear: European and Asian gas prices have risen much more sharply than crude oil since the start of the conflict, a gap that signals that gas faces a longer recovery than oil.
Global demand for gas has grown roughly twice as fast as demand for oil over the past decade, according to the Energy Institute, driven by the construction of pipelines and storage networks.
Total oil demand is higher than total gas demand, but gas consumption has grown twice as fast as oil consumption since 2015. And this growth trajectory was widely expected to continue, especially in developing economies that are transitioning away from coal.
However, LNG supplies from Qatar - the world's second-largest exporter - have been abruptly cut off after Iranian attacks knocked out 17% of the country's export capacity for up to five years. The resulting rise in gas costs has served as a warning to consumers about the dangers of heavy import dependence and is likely to slow the addition of new gas-fired power capacity.
At the same time, utilities, homes and businesses have never had such a range of affordable alternatives to gas for electricity.
Solar panels and battery systems in particular offer energy suppliers a much faster and cheaper way to increase electricity supply than adding new gas capacity, the development of which can take years.
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