Stop only focusing on crude oil! The "Hormuz Crisis" has a greater impact on this energy source.

Early Monday, international oil prices surged sharply due to the near halt of shipping through the Strait of Hormuz. However, some analysts point out that the long-term impact of closing the strait could be more severe for the liquefied natural gas (LNG) market, partly because LNG is more difficult to transport than crude oil and its production is more concentrated.

It is understood that about 20% of the world’s LNG is transported via the Strait of Hormuz, mostly from Qatar. Data shows that Qatar alone accounts for nearly 20% of global LNG exports.

Last week, following an Iranian drone attack, QatarEnergy, the global leader in LNG exports, issued a shocking announcement: its Ras Laffan industrial complex—the world’s largest LNG export facility—was forced to cease operations due to a military attack. The company also declared that LNG deliveries faced “force majeure.”

Following this news, global natural gas prices soared: European natural gas prices jumped 63% last week, the largest weekly increase since the Russia-Ukraine conflict erupted in March 2022. Asian natural gas prices were even higher, trading at $23.40 per million British thermal units on Monday morning. Countries across Asia are working to make up for lost shipments, and as the price gap between European and Asian natural gas widens, some LNG carriers originally headed to Europe are now turning toward Asia.

The Sadness of Unchangeable Routes

Oil transportation has alternatives—some crude oil from Saudi Arabia and the UAE is transported via pipelines on land—but natural gas lacks similar pipeline infrastructure. In other words, long-distance natural gas transportation almost exclusively relies on specialized LNG ships.

Alex Munton, head of global natural gas and LNG research at Rapidan Energy, pointed out that the more critical issue is that, although the Middle East has multiple oil-producing countries, oil fields, and refineries, natural gas production is concentrated in Qatar’s Ras Laffan industrial city. This makes the global LNG market more vulnerable than the oil market.

Rebuilding Production Is More Difficult

Munton also noted that the real risk is that once traffic through the Strait of Hormuz resumes, restarting Qatar’s LNG production will be far more difficult than resuming oil production. He explained that liquefying natural gas is a highly industrialized, technically demanding cooling process, unlike oil production, which is relatively easier to restart. Once halted, recovery takes longer, and it cannot be adjusted on the fly like oil.

He further predicted that LNG exports in the region will only restart once it is 100% certain that ships can pass safely through the Strait of Hormuz. Insurance is a factor—an LNG carrier can cost up to $250 million. More importantly, the entire LNG production and transportation chain is too complex to be adjusted based on expectations of escalation or de-escalation.

Munton also said that a full restart would take weeks rather than days, adding that the entire plant has never been shut down before.

“I think in the first few days of this conflict—it’s only been a week—people haven’t yet realized how long Qatar will be offline and what impact this will have on global supply and markets,” he added.

No Alternative Supplies

The U.S. is the world’s largest LNG exporter, but its capacity is nearly maxed out. Other regions lack sufficient new supply to quickly fill the gap, so demand suppression may ultimately balance the market. For example, some users might turn to cheaper coal as a substitute for natural gas.

However, Munton stated that escalating hostilities, including further attacks on Qatar’s LNG infrastructure, could have more significant long-term effects. The company believes that Iran’s previous attack on Ras Laffan was just a “warning, not a real act.”

“It’s like a lamb waiting to be slaughtered,” Munton said about the industrial complex. “If Iran wants to cause significant damage to Qatar’s LNG capacity, it can do so… If Iran is determined to destroy this plant, Qatar has no way to fully defend against Iran’s attack.”

He emphasized that Middle Eastern oil production is dispersed across multiple countries, fields, and facilities, making it difficult to destroy the entire regional oil supply through a single point. But LNG is different. Although Ras Laffan is enormous, it is ultimately a single facility. This high concentration makes it a critical vulnerability in the global energy system.

(Source: Cailian Press)