The US-Israel attacks on Iran created instant disruption in the world of oil and liquefied natural gas.
The oil-gas market-turmoil is the worst since Russia invaded Ukraine in 2022.
- Qatar, the world’s second largest exporter of LNG (after the US) shut down production following Iranian drone strikes on its facilities, reducing near-term global supply by almost a fifth.
- The US LNG industry, the world’s largest LNG exporter, looked to gain from increased or diverted sales and higher prices.
- The threat of Iranian action left scores of oil tankers and LNG carriers stranded or hampered in the Strait of Hormuz between Iran and Oman. The strait handles 25% of seaborne oil trade and 20% of global LNG trade.
- Saudi Arabia suspended operations at its biggest oil refinery.
- The price of natural gas in Europe has jumped by 70%.
- The price of oil quickly rose, with Brent Crude hitting US$83.84 per barrel the highest level since July 2024.
- The ship-charter rates for LNG carriers also boomed by as much as 650 per cent.
Qatar resumption may take weeks
Qatar said it could be some weeks before it could resume production. And with about 80% of Qatar’s LNG destined for Asian buyers, such prolonged disruption could force buyers to seek alternative supplies.
Beijing called for an immediate ceasefire and some buyers in Asia are asking suppliers outside the Middle East for early LNG deliveries to cover potential gaps in March shipments.
Between 180 and 200 oil and LNG tankers were reported at a standstill, backed up on both sides of the Strait of Hormuz. The commander of Iran’s Revolutionary Guards had threatened to fire on any ship passing through.
One editor noted that Europe’s hefty reliance on LNG also left it exposed to disrupted flows via the Strait of Hormuz.
U.S. producers at capacity
“Critically, 2024 numbers show 83% of Hormuz LNG flows to Asia, as China, India, and South Korea alone take 52%. Any disruption would force Asian buyers to compete with Europe for the remaining non-Hormuz supplies from the US and Australia.”
Shares in a couple of key US LNG producers surged in value, thanks to the disruption, but producers can’t ramp up production beyond current levels, said Alex Munton, an expert on natural-gas markets at consulting firm Rapidan Energy.
“They’re basically running at capacity,” he said.
But if US producers can’t boost output of LNG, they can “reroute to where the demand is greatest,” Munton said. “We saw this in 2022 after Russia’s invasion of Ukraine. Suddenly, Europe was left short, and it was able to call on US LNG and utilize the inherent flexibility of US LNG.”
Canada’s fledgling LNG industry won’t win any bonuses, but gas producers may enjoy better prices.
Europe faces an almost worst-case scenario
Loss of Qatar LNG will hit Europe’s supply. Munton said Europe is facing an almost-worst-case scenario on energy today, with a legislative ban of Russian pipeline gas and LNG beginning, on March 18, to be gradually phased in through the year.
The recognized “heating season” in Europe ends on March 31, but Europe will need a lot of cargoes to arrive in the spring and summer to refill the gas storage sites that have been depleted to the lowest level in years. The storage sites were estimated to be only 30% full as of March 1.
And the Dutch Title Transfer Facility (TTF) — the European natural-gas pricing benchmark, spiked 25%. So did the Japan/Korea Marker (JKM) pricing .
Oil prices climbed after the Iran war was launched on March 1. They dipped a few days later, but were still notably higher than when the conflict started. And there were some guesstimates that oil could soon hit US$100 a barrel.
S&P Global experts said that if the Strait of Hormuz were to close for an extended period of time, “it would be among the greatest supply shocks in history, and the price of oil undoubtedly would escalate well over $100 b/d (barrels a day).”
Long closure ‘highly doubtful’
However, they added: “Given the importance of the strait and the substantial U.S. military presence in the region, it’s highly doubtful the strait could be closed for an extended period of time, and any closure, we believe, would likely be temporary. Markets will need confidence and assurances that the safety of personnel and vessels can be provided.”
US president Donald Trump quickly promised the US would provide insurance to tankers transiting the Strait of Hormuz and provide naval escort if necessary. And that helped ease oil prices.
How long negative market impacts continue is anyone’s guess. Trump spoke of the strikes on Iran continuing for another “four to five weeks, but we have capability to go far longer than that.”
And we are reminded that when World War I broke out, in July 1914, politicians said it should be over by Christmas. It actually went on for another four years and four months, with at least 15 million deaths (and some estimate as many as 20 million.)
Don MacLachlan is a writer for Resource Works, a non-partisan organization that champions responsible resource development in British Columbia and Canada. Reach Don at [email protected].
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