The spread

The Japan-Korea Marker — JKM, the benchmark for spot LNG in Asia — settled at $25.39 per million BTU on Monday. That's up 69 percent in a week.^[4]

The Dutch TTF — Europe's benchmark — rose 50 percent over the same period, landing around $15.50.

The JKM-TTF spread is now roughly $10 per mmBtu in favor of Asia. For anyone operating an LNG cargo with destination flexibility, the arithmetic is unambiguous: the ship goes east.

This is the arbitrage trade that defined the 2022 energy crisis, and it's back. But the mechanism driving it is different, the supply destruction is worse, and the question of who ends up rationing demand has moved from theoretical to urgent.

What happened to Qatar

On March 2, QatarEnergy ceased production of liquefied natural gas at both Ras Laffan Industrial City and Mesaieed Industrial City after Iranian drone strikes hit the facilities.^[1][2] Qatar's defense ministry confirmed the drones were launched from Iran, part of the retaliatory cascade that followed the US-Israel strikes on February 28.

The production halt removes approximately 19 percent of global LNG supply from the market.^[5] Nearly 90 percent of Qatar's LNG exports go to Asia, with the remainder mostly serving Europe. So the immediate supply shock falls disproportionately on Asian buyers — Japan, South Korea, China, India, Pakistan — who were already Qatar's largest customers.

Roughly 20 percent of global LNG transits the Strait of Hormuz. All of it is Qatari.^[8] So even if the production facilities are repaired quickly, the shipping route remains compromised for as long as the strait is effectively closed.

The result is a two-layer disruption: the gas isn't being produced, and even if it were, it couldn't be shipped.

The reroute

When Qatar goes offline, the marginal LNG molecule has to come from somewhere else. The candidates are: the United States, Australia, and a handful of smaller producers in West Africa, Southeast Asia, and Trinidad.

Australia's proximity to Asian buyers makes it the natural first replacement. But Australian LNG capacity is fully contracted — there isn't meaningful spot volume available to redirect. Some cargoes that were headed to Europe on favorable freight economics are now pivoting back to Asia as the JKM premium widens.^[7]

The US is the swing producer. American LNG terminals — Sabine Pass, Freeport, Cameron, Plaquemines, Corpus Christi, now Golden Pass — are the only facilities with material uncommitted capacity and destination-flexible contracts. When the JKM-TTF spread blows out, US cargoes that would have gone to Europe get rerouted to Asia. This is exactly what happened in 2022, and it's happening again now.^[6]

The mechanics: a cargo loaded at Sabine Pass takes about 25 days to reach Japan via the Panama Canal, versus 10-12 days to Northwest Europe. The transit cost difference is roughly $1-2 per mmBtu. At a JKM-TTF spread of $10, the extra shipping cost is noise. The cargo goes east.

Who gets rationed

If the cargoes are going to Asia, they're not going to Europe. This is a zero-sum game at the current supply level, and Europe is on the wrong side of the bid.

European gas storage is at roughly 40 percent heading into the refill season — adequate by normal standards, but this is not a normal year. The continent needs to refill to at least 90 percent by November to get through next winter without industrial curtailments. If US cargoes that were priced for European delivery get rerouted to Asia for the next several months, Europe's refill trajectory flattens, and the question of winter supply gets uncomfortable by August.

The rationing mechanism in Europe works through price: TTF rises until demand destruction kicks in. The first casualties are industrial consumers — fertilizer plants, steel mills, ceramics manufacturers, glass factories — that face energy costs above their shutdown economics. This is exactly what happened in late 2022, when European industrial gas demand fell 15 to 20 percent as factories simply stopped running.

Utilities are stickier. Residential and commercial heating demand is relatively price-inelastic in the short run (people need heat). Power generators can substitute to some extent — coal, nuclear, renewables pick up load — but the marginal megawatt in Europe still comes from gas-fired plants, so electricity prices track TTF with a multiplier.

Asia's rationing mechanism is different. Japanese and Korean utilities will pay whatever it costs, because their alternatives are worse (both countries have minimal domestic gas production and limited pipeline interconnection). The price signal simply gets passed through to industrial and residential tariffs, with a lag. Chinese buyers have more optionality — pipeline gas from Russia and Central Asia covers roughly 40 percent of supply — but LNG from Qatar and the UAE still accounts for about 30 percent of China's LNG imports.

The result is a bidding war between Asian utilities (who have no substitution option and will pay any price) and European utilities (who have some substitution options and will pay high prices but not infinite ones). Asia wins this bidding war. Asia always wins this bidding war. The structural disadvantage of being an island economy with no domestic gas supply is that you are, permanently, the buyer of last resort — which in a shortage means you're the buyer who pays the most.

The US windfall

American LNG exporters are having a very good week. The spread between Henry Hub (the US benchmark, around $4 per mmBtu in normal conditions, currently elevated to roughly $5-6 due to the broader energy shock) and JKM at $25 gives a netback that would make a private equity fund blush. Even after liquefaction costs ($2-3), shipping ($2-3), and regasification ($0.50-1), the margin per cargo is extraordinary.

Cheniere, Venture Global, Sempra, and the other US LNG operators are running at full tilt. Feed gas demand at US terminals has hit record levels. The three new facilities — Plaquemines, Corpus Christi Stage 3, and Golden Pass — that were ramping up gradually are now ramping up as fast as the engineering allows.^[3]

This is the "energy dominance" thesis in action: the US as the world's swing LNG supplier, profiting from geopolitical disruptions that it is, in some non-trivial sense, also causing. We'll revisit the domestic politics of that arrangement in a separate piece.

The duration question

Everything above assumes the Qatar disruption persists. If QatarEnergy restores production quickly and the strait reopens within weeks, the arbitrage window closes and prices normalize. The spread reverts, the cargoes go back to their contracted routes, and the crisis becomes a footnote.

If it doesn't — if the facilities take months to repair, or the strait remains effectively closed for an extended period — then we're in 2022 again, but worse. Worse because European storage is lower than it was pre-2022 crisis, worse because Asian demand is higher, and worse because the new US LNG capacity that everyone was counting on to balance the market is now being absorbed by emergency Asian demand rather than incremental European supply.

The gas market is, at its core, a logistics problem. The molecules exist. The production capacity exists (or did, before the drones). The ships exist. What doesn't exist is the ability to move 19 percent of global supply from one set of facilities to another overnight.

JKM at $25 is the price of that logistics problem. TTF at $15 is Europe discovering, again, that it is the residual buyer in the global LNG market — the customer that gets served after everyone else has bid.

We've been here before. The plumbing is the same. The prices are higher.