The Strait of Hormuz is the world's most important energy transport route, where about 20% of global LNG must pass through. Most of this is exported from Qatar - one of the world's largest LNG producers. The situation became serious after Qatar announced a temporary suspension of LNG production on March 3, after an Iranian drone attack. This decision immediately shook the international gas market.
Gas prices in Europe last week increased by 63%, the strongest percentage increase since March 2022, when the Russia-Ukraine conflict broke out. Meanwhile, gas prices in Asia were even higher, reaching about 23.40 USD per million British units of heat (MMBtu) in the first trading session of the week.
The price difference between the two regions is causing the global LNG flow to reverse. Some gas tankers that were expected to arrive in Europe have turned around and shifted to Asia - where demand is large and prices are higher.
Asian countries that are heavily dependent on Qatar's LNG are urgently looking for alternative sources to compensate for the shortage of goods. However, unlike crude oil, replacing LNG supply is not easy.
Part of the oil of Saudi Arabia and the United Arab Emirates (UAE) can be redirected through pipelines to avoid the Strait of Hormuz. But with gas, there is almost no similar infrastructure. LNG is forced to be transported by specialized ships over long distances. This makes the LNG market much more vulnerable than oil.
According to Mr. Alex Munton, Global Gas and LNG Research Director of Rapidan Energy Group, the biggest risk lies in restarting production at the Ras Laffan complex in Qatar - the world's largest LNG center. The gas liquefaction process requires a complex industrial system with extremely low temperatures. Therefore, restarting production lines will take longer than restoring oil production. Rapidan Energy forecasts that LNG exports from this region can only resume when there is absolute certainty of safety for transport ships passing through Hormuz.
An important factor is insurance. Each LNG ship can be worth about 250 million USD, making transport companies extremely cautious about security risks.
LNG plants cannot also operate in a "on - off" manner depending on the tense developments. When operations are stopped, restarting may take weeks, instead of a few days as in the oil industry. Notably, the entire Ras Laffan complex has never had to stop operating completely before, making the level of uncertainty even greater.
Meanwhile, the US is currently the world's largest LNG exporter. However, liquefied petroleum facilities in this country are operating at almost full capacity, making the possibility of increasing supply to compensate for the market very limited.
The most worrying scenario is still the escalation of conflict in the Middle East. According to Mr. Munton, previous attacks on Qatar's LNG facilities may just be "a warning shot". If Iran really wants to cause serious damage to Qatar's LNG export capacity, they are fully capable of doing so.
The weakness of the LNG market lies in its high concentration. While oil production in the Middle East spans many countries, oil fields and factories, the region's LNG mainly depends on a giant complex in Ras Laffan. Just one bottleneck here, the entire global LNG supply chain could be shaken.
In a related development, the national energy corporation QatarEnergy has decided to postpone its plan to expand liquefied gas production facilities until 2027, raising further concerns about the possibility of increased supply in the medium term.
