Countries around the world are facing a cliff-edge as the flow of liquefied natural gas from the Gulf comes to an abrupt end in the next 10 days, when a handful of final tankers from the region reach their destinations.
Qatar, which produces a fifth of the world’s liquefied natural gas, had to stop exports after Iran blockaded the Strait of Hormuz at the mouth of the Gulf, in the first few days of the conflict.
It has since suffered enormous damage to its giant Ras Laffan LNG plant, which was attacked by Iranian missiles this week, sending gas prices in Asia and Europe soaring.
But many LNG carriers that loaded at Qatar and the United Arab Emirates were already on their way to destinations before the war started, according to analysis by independent shipbroker Affinity, meaning that some customers are only now about to feel the pain of lost supply.
Countries reliant on imports to power their economies will have to pay sky-high prices to compete for LNG supplies from the US and elsewhere, switch to other fuels or force households and businesses to use less.
Many oil and gas-poor Asian countries have already imposed measures to avoid shortages, such as four-day weeks.
Only one LNG cargo from the Gulf is still scheduled to arrive in Asia, which buys almost 90 per cent of the region’s output, according to ship-tracking data. Six LNG shipments are still due to arrive in Europe.
Pakistan is in a particularly vulnerable situation. Almost 99 per cent of its LNG imports came from Qatar last year. Its last cargoes from Ras Laffan arrived on the second and third days of the Iran war.
Both of the country’s LNG import terminals have reduced their operations to one-sixth of normal levels and will have stopped dispatching gas completely by the end of the month, according to two people familiar with the situation.
One of the two terminals, owned by Pakistan GasPort, will run out of LNG to process in the coming days, said its chair and chief executive Iqbal Ahmed. “After that we’ll run dry,” he said. “We do not know when the next cargo will come in.”
Before US and Israeli strikes on Iran began, Islamabad was facing an oversupply of LNG and had asked supplier QatarEnergy to redirect 24 cargoes that had been scheduled to arrive in Pakistan this year. It asked Eni of Italy to redirect a further 11 cargoes.
State-owned buyer Pakistan LNG asked Eni to send some of those cargoes after the war broke out, according to a person familiar with the matter, but the request was unsuccessful. Eni declined to comment.
Pakistan LNG also contacted traders and suppliers in Europe, Oman, the US, Azerbaijan and Africa but all offered prices that were too high for Pakistan to accept, said the person.
Pakistan LNG declined to comment.
Buying LNG on the spot market is prohibitively expensive for Pakistan. Asian LNG prices on the Platts JKM benchmark have doubled since the war began, to around $23 per million British thermal units (MMBtu). Shipping costs have risen because of higher charter rates and longer journeys to alternative suppliers of LNG.
Pakistan is likely to turn to more expensive and dirtier furnace oil as much as possible to generate power if the conflict continues. Even so, “I see us having one very difficult year followed by two or three difficult years to follow”, said GasPort’s Ahmed.
Bangladesh is vulnerable for similar reasons, but to a lesser extent because it receives some LNG from outside the Gulf. It would also struggle to pay sky-high prices to replace LNG it would otherwise have received from the Gulf, and lacks alternative fuels. The government has initiated gas-rationing measures, including closing universities.
As one of the biggest buyers of LNG from the Gulf, Taiwan is grappling with the consequences of its attempt to shift from coal to cleaner-burning gas while phasing out nuclear energy before a full shift to renewables. It moved quickly to secure replacement cargoes immediately after the war broke out.
On March 10, the Ministry of Economic Affairs said 22 cargoes from the Gulf had been secured, ensuring that there would be no supply concerns through to the end of April. Even so, electricity demand typically surges in the summer, raising the possibility of “severe energy shortages” if the Strait of Hormuz remains closed, said Kevin Li from the Atlantic Council’s Global Energy Center.
China and Japan are also likely to buy some spot LNG cargoes to make up the shortfall from the Gulf, traders say. “Our plan is to buy in the spot market from JKM to cover supplies,” said one Japanese LNG trader. But traders and utilities are taking a wait-and-see approach and they plan to return to coal, they said.
Japanese utilities are holding back on LNG purchases for now, another trader confirmed. “Only a few buyers are considering spot cargoes.” While Japan is the world’s second biggest LNG importer after China, it is less exposed to the disruption of flows from the Middle East as only 6 per cent of its supply passes through the Strait of Hormuz.
China gets 30 per cent of its LNG from the Gulf but has some domestic gas production and can switch to coal-fired power generation if needed.
Japan is also set to use more coal and nuclear to generate electricity. It partially restarted operations at the world’s largest nuclear plant in the prefecture of Niigata in January.
Until more ships are allowed to pass through the Strait of Hormuz, global LNG supplies will remain tight.
Even then, there will be less available to the market because 17 per cent of Qatar’s LNG capacity will continue to be out of service for between three and five years because of the attacks on Ras Laffan, the country’s energy minister Saad Al-Kaabi said this week.
“This means that we will be compelled to declare force majeure for up to five years on some long-term LNG contracts,” said Al-Kaabi.
Data visualisation by Steven Bernard and Nassos Stylianou
