Asian buyers would be most exposed by a potential blockade
Asian buyers would be most exposed by a potential blockade

Hormuz disruption could send global LNG ‘into disarray’

A potential blockade by Iran of shipping transiting through the Strait of Hormuz could send the global LNG market into disarray and particularly impact Asia, according to Energy Intelligence.

A full-scale Iranian blockade of maritime traffic through the Strait remains a low-probability, worst-case scenario for most market sources polled by the company.

But if the ongoing conflict in the Middle East escalates further – Iran’s IRGC seized an ‘Israeli-linked’ ship near the Strait last month, according to Al Jazeera – the global LNG market would struggle to offset the loss of volumes exported from the region and its impact would likely be higher than when Russia stopped pipeline gas to Europe, potentially triggering new price highs.

“This is one of the worst stress tests one can apply to the LNG markets,” according to Felix Booth, head of LNG at energy and shipping analytics firm Vortex, quoted by Energy Intelligence.

While Asian buyers would be most exposed by the potential blockade, other global buyers would feel its implications, particularly in Europe, which relies heavily on spot LNG procurement.

The Strait of Hormuz is one of the key shipping transit routes in global energy supplies, accounting for about 20% of global LNG exports.

The transit route is considered to be a bottleneck affecting LNG shipments from major supplier Qatar and rising LNG exporter, the UAE.

Source: Energy Intelligence

The combined weekly LNG exports of Qatar and the UAE averaged 1.6 million tonnes since the beginning of 2023, Kpler data shows, while Asian buyers have imported close to 70 million tonnes from the two countries.

H.E. Saad Sherida Al-Kaabi, Minister of State for Energy Affairs, and President and CEO of QatarEnergy, said Qatar’s LNG expansion projects are moving towards an increased production capacity of 142 million tonnes per year, and it will be signing “more LNG sales this year”.

“If you look at the expectation of having 1.5 to 2 billion more people in the next 30 years or so, that means we will need more energy, more power, and even more petrochemicals for materials we use every day. We also need to be fair to that population and make sure they have access to reasonably priced power,” he said.

The narrow strait became a focus of attention following the most recent escalation in the proxy conflict between Israel and Iran, exacerbated by the Israel-Hamas war, which caused all tanker traffic to be halted through the Red Sea after Yemen’s Houthi group targeted ships around the Bab al-Mandeb strait with missiles and drones.

Tit-for-tat attacks between Israel and Iran last month threatened to throw the region into an all-out war, but have since de-escalated back into a proxy conflict between the two powers.

The global LNG market was not majorly affected by the closure of the Red Sea transit route, as global LNG supply has been segmented geographically since 2023, with US LNG cargoes mostly heading to Europe, while Qatari volumes focused on markets in Asia-Pacific.

While Europe is less dependent on Qatari and UAE LNG volumes, a tighter global LNG supply pool would make it more difficult and expensive for the region to fill its natural gas inventories ahead of the high-demand winter season, the report added.

Europe would potentially be able to replace at least a part of those volumes from other sources in the Atlantic Basin, although it could possibly mean more Russian LNG coming to the continent.

Meanwhile Malaysia LNG Group of Companies (MLNG), a subsidiary of Petronas, has resumed full operations at Bintulu, following a power loss incident two weeks ago.

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