The growing conflict in the Middle East is leading to delays in the transportation of LNG through the Strait of Hormuz from major export countries in the area, causing significant increases in spot LNG prices in Asia and the European natural gas market.
The strategically vital Strait of Hormuz, through which approximately 20 percent of the world's oil and LNG transit, remains technically open.
Nevertheless, prominent maritime firms, energy corporations, and traders have essentially suspended the transport of goods via the narrow channel between Iran and Oman.
According to vessel-tracking data compiled by Bloomberg, in recent hours, at least 12 empty tankers on the eastern side of the Strait of Hormuz have changed their course.
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The postponement of LNG deliveries from Qatar and the United Arab Emirates (UAE) is expected to lead to a significant increase in natural gas prices in both Europe and Asia.
According to analysts at Goldman Sachs, a suspension of LNG shipments through the Strait of Hormuz for a period of one month would result in a 130 percent increase in Asia's spot LNG price, raising it to $25 per million British thermal units (MMBtu).
The data from Kpler, Qatar, the second-largest exporter of LNG in the world following the US, is responsible for approximately 20 percent of the worldwide supply, all of which passes through the Strait.
The potential threat to liquefied natural gas (LNG) shipments, although not as extensively publicized as the threat to oil supply, is indeed genuine although less prominently discussed compared to the risk to oil.
According to Amena Bakr from Kpler, there is a significant threat to the gas supply due to Israel reducing production from its offshore fields, disruptions in energy tanker traffic in the Gulf, and the structural vulnerability created by Qatar's reliance on transit for exporting LNG.
“For gas markets, the real impact will be on European and Asian LNG prices,” ING’s commodities strategists Warren Patterson and Ewa Manthey denotes.
“While there’s been a ramp-up in LNG export capacity and more to come, particularly from the US, this would not come soon enough to offset potential losses from the Persian Gulf”.
Furthermore, Goldman identified that the effect on US natural gas prices would probably be minimal. This is due to the fact that the US is a significant net exporter of LNG, with its liquefaction facilities currently running at maximum capacity, which limits the ability to increase exports in the near future.
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Consequently, even though international LNG standards could experience a significant increase in price, the domestic gas markets in the US may continue to be relatively shielded from such fluctuations.
Global oil prices saw a substantial increase of almost 10 percent on Monday, reaching their highest levels in several months. This surge was driven by the escalating military tensions involving the US, Israel, and Iran, which raised concerns about potential disruptions in oil supply through the vital chokepoint of the Strait of Hormuz. This strategic waterway is responsible for transporting over 20 percent of the world's oil.
In the beginning of trading, the cost of Brent crude oil surged to $78.52 per barrel due to the impact of the military actions carried out by the United States and Israel against Iran, resulting in the reported death of Iran's Supreme Leader, Ali Khamenei, and subsequent retaliatory attacks launched by Tehran. Consequently, there is currently a heightened geopolitical risk premium factored into market prices, prompting analysts to warn that the increased prices may be sustained for an extended period, contingent upon the timeline for the normalization of shipping activities.