The de facto closure of the Strait of Hormuz and a production shutdown in Qatar are set to trigger a 70% drop in LNG exports from the Middle East this month, analysts have said.
No LNG carriers have crossed the strait – the only point of access to the Persian Gulf – in March after Iranian forces declared the waterway closed and launched a series of strikes on commercial vessels, analysts at Kpler said on March 5.
At the same time, QatarEnergy declared force majeure to its buyers, a day after military attacks prompted the state energy company to halt LNG production at its facilities in the Ras Laffan and Mesaieed industrial cities.
Kpler’s Laura Page, an insight manager for natural gas, said the Middle East had been expected to export around 8.1 million tonnes of LNG this month, but that figure has now been revised downwards to just 2.3 million tonnes.
The drop is equivalent to around 14% of anticipated global supply being taken off the market, she said. In addition, several vessels have loaded cargoes in recent days but are now unable to transit the Strait of Hormuz, leaving some LNG exports “trapped in the region”, Page said.
LNG prices in Asian and European markets have surged by as much as 65% since February 27, when the US and Israel launched missile strikes on Iranian political and nuclear targets.
There has been speculation that other major producers of LNG, such as the US – the world’s largest exporter last year – could increase output to make up for lost Qatari supply.
However, Kpler’s Page said the US – as well as Australia, the third-largest exporter of liquefied gas – are already operating at “very high utilisation rates”.
Though there is spare capacity at some LNG facilities in other markets, including Nigeria, Algeria and Trinidad and Tobago, operators are struggling with feed gas availability, she said. “While we do think that liquefaction plants across the world will try and churn out more supply to benefit from this rise in spot prices, it’s going to be really hard to offset such a steep supply loss.”
Page added that even if vessels are soon able to pass safely through the Strait of Hormuz, which remains “a big unknown”, the process of restarting production plants in Qatar could take one to two weeks.
Though exports would likely begin from storage tanks, she said March exports “will be acutely affected… and that will have a knock-on impact for April as well”.
The impact of severe disruption to the Middle East’s exports is being felt across Asia, said Japan-based Go Katayama, a principal insight analyst for LNG and natural gas at Kpler.
Analysts said yesterday that China, India, Taiwan and South Korea are highly exposed to the loss of supply, but Katayama added that Pakistan, Bangladesh and India are also at risk.
Pakistan and Bangladesh rely on Qatar for 99% and 70% of LNG imports respectively, he said, and “have signed term contracts, so the force majeure labelled on these countries will have them scrambling into the spot market at very high prices”.
This “will make it very hard for them, economically, to secure cargoes,” Katayama said. “We’re starting to see some demand destruction already in the fertiliser sector as well as the industrial sector.”
The situation in the Strait of Hormuz remains dangerous for vessels. Maritime intelligence firm Windward said in a report today that eight vessels have now been struck over the last few days, with attacks taking place in “a broad arc across the region” rather than a single chokepoint.
“This distribution suggests Iran is using relatively limited strike resources to inflict indiscriminate disruption across a wide maritime area, targeting vessels not only inside the Arabian Gulf but also in waters where operators previously believed they could anchor safely outside the Gulf itself,” it said.
The report found that crossings through Bab el-Mandeb, south of the Red Sea and west of the Gulf of Aden, have increased sharply today as vessels are diverted.
Windward recorded 21 crossings, an increase of 950% compared to the previous day and well above the seven-day average of 2.6.
