What is Happening in the LNG Market?
Since the USA/Iran/Israel conflict began on 28th February this year, Global LNG (Liquified Natural Gas) prices have spiked significantly, with Asian LNG spot prices surging by 143%. As well as European wholesale gas prices (such as Dutch TTF) increasing by circa 85%. As the world is well aware, the conflict has closed the Strait of Hormuz, Qatar Energy and Adnoc (Abu Dhabi National Oil Company), who together make up 20% of global LNG exports. They have turned to alternative methods to ship LNG out of the Persian Gulf.
In a significant move to ship LNG through the Strait of Hormuz, both exporters are adopting tactics pioneered by Moscow by going “dark”, and employing tactics that are being used by what is commonly known as Russia’s “Dark Fleet”*. Experts note that these covert tactics have already allowed Qatar and Abu Dhabi to slip a limited number of shipments through the blockaded Strait. Shipping commentators suggest these initial runs serve as a critical test case for expanding dark-fleet operations in the region. Limited data on the situation suggest that the tankers are switching off vessel-tracking equipment (AIS transponders), and are hiring crew from a recruiting company that is known to have provided personnel for tankers carrying sanctioned Russian LNG.
*The Dark Fleet – A large clandestine network of aging oil tankers, shell companies and maritime service providers that operate outside international regulations to transport sanctioned oil primarily from Iran, Russia and recently, Venezuela. Experts and analysts estimate the fleet to be roughly in the region of 1,470 tankers that use deceptive practices such as disabled tracking systems, forged documentation and ship-to-ship transfers in open waters that enable them to bypass international sanctions.
Interestingly, perhaps even bizarrely, some analysts are predicting an upcoming glut in the LNG market, which does seem to be counterintuitive as the closing of the Strait of Hormuz has effectively halted 20% of global exports. Indeed, Qatar has the largest LNG plant in the world, and the government has advised that it will take at least three years of repairs to get the plant back to 100% working order. Experts have suggested that as long as the Strait of Hormuz is opened by the beginning of September, a long-term surplus from 2026 – 2023 is on the way, which will result in lower prices.
Analysts suggest that the Middle East conflict has redefined the future of the LNG market as importers from the Persian Gulf, especially those countries in Southeast and Southwest Asia have been marooned without reliable energy supplies. These countries will have long memories and any future long-term contracts may well, due to lack of trust in supply from the Persian Gulf, diversify away as a matter of priority and finance upcoming LNG ventures outside of the Strait of Hormuz. One commentator has gone so far as to say that the current US/Iran/Israel crisis will guarantee a construction boom in the LNG industry that excludes the Persian Gulf.
Before the Middle East conflict broke out, analysts were predicting a LNG glut from 2026 – 2030, and as such have predicted that this will be delayed by about a year. They suggest that buyers from Asia will help finance more projects in Africa, Latin America and North America. According to data released from the IEA (International Energy Agency), last year the construction of 100 billion cubic metres of new capacity was approved by the LNG industry. The IEA has also noted, “There remains a pipeline of over 700 billion cubic meters of projects globally seeking final investment decisions, including circa 110 billion in the United States that have received regulatory approval”.
If the current pipeline of global projects is fully realised, global LNG supply is estimated to double. Should the Russia-Ukraine war draw to a close, an influx of legacy supply would hit the market simultaneously, amplifying the potential glut. However, the price of LNG would have to significantly fall in order for the market to absorb the increase in supply. However absorption happened in the past, so whilst experts expect this glut to arrive in the next 12 months, all eyes remain fixed on the diplomatic solutions to end the Middle East conflict.
