The escalating conflict between Iran and Israel has indeed brought the Strait of Hormuz back into sharp focus, with significant implications for the global LNG market. As you highlight, this critical passage accounts for a substantial 21% of global LNG supply, with over 1,000 loaded LNG carriers (LNGCs) from key producers like Qatar (Ras Laffan) and the UAE (Das Island) traversing it annually.
Heightened Tensions
The recent exchange of attacks between Israel and Iran has significantly heightened geopolitical tensions in the Middle East, sparking considerable concern regarding the global Liquefied Natural Gas (LNG) trade, particularly through the Strait of Hormuz. This maritime passage is exceptionally critical for the global LNG market, accounting for approximately 21% of the total global LNG supply. It serves as the indispensable conduit for LNG exports from major producers like Qatar and the UAE (excluding Oman).
Any potential blockade or significant disruption to the Strait of Hormuz is anticipated to severely impact the global LNG market, directly affecting exports from Qatar and the UAE, who send nearly all of their LNG through the strait. The magnitude of any resulting supply shortage would be directly proportional to the duration of such a closure.
According to Drewry AIS data, Qatar typically exports around 0.2 million tonnes of LNG per day, which translates to approximately 10-12 LNG carrier (LNGC) loadings daily. The UAE, while a smaller exporter than Qatar, still contributes to global supply with one or two LNGC loadings per day.
Ripple Effect
The escalating tensions in the Middle East, particularly around the Strait of Hormuz, are creating significant ripple effects across the global Liquefied Natural Gas (LNG) market, with distinct implications for different regions.
Not Smooth-Sailing: Asian LNG Market Volatility: Asian buyers, being more reliant on Middle Eastern LNG supplies, are expected to be more exposed to any disruptions. This heightened exposure will likely cause Asian Spot LNG prices to rally amid a potential supply shortage. While these higher prices might incentivize other global LNG exporters to ship their cargo eastward, they will simultaneously dissuade price-sensitive buyers, especially in South and Southeast Asia, who may find LNG unaffordable. This could lead to a two-tiered market where wealthier Asian nations secure supplies while others struggle.
Asia’s Hunt for Alternatives Will Challenge Europe’s Comfortable Position : Until now, Europe has enjoyed a relatively comfortable position in the global LNG market due to several factors: China’s reduced competition for US LNG, China’s pivot towards Middle Eastern and Russian supplies, and generally subdued demand across Asia. However, any significant supply disruptions in the Middle East will compel Asian buyers to aggressively seek alternatives in other markets. This intensified competition will directly impact Europe, causing TTF (Title Transfer Facility) futures to spike in tandem with Asian Spot prices. This price increase, while burdensome, will paradoxically ensure Europe remains an “attractive destination” for available LNG cargoes. Indeed, TTF futures have already seen a rally, rising 5% on June 17 and reaching a 10-week high, signaling the market’s fragility and Europe’s high sensitivity to supply disruptions.
Middle Eastern Supply Essential for Summer Demand: The upcoming summer months are set to amplify demand for LNG, especially from countries like Egypt and Iraq, which primarily aim to source more LNG from the Middle East. Should a tight supply scenario emerge, these nations will be forced to alter their primary supply sources, further spurring competition for “summer cargoes” on the global spot market. Moreover, regional buyers such as Kuwait and Bahrain will become highly reliant on their internal gas supplies, as importing from other distant destinations would become economically or logistically impossible under tight market conditions.
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Source: Drewry
