Long Road Ahead for LNG Recovery, Study Finds

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Written by Daniel Graeber for IIR News Intelligence (Sugar Land, Texas)

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Summary

The worst-case scenario in an analysis on the global LNG market finds a return to normal is largely out of the question this year. Two major players, Qatar and the United Arab Emirates, have seen volumes curtailed by war.

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Shipping is Inherently Risky

Threats to shippers moving through the Strait of Hormuz could remain for foreseeable future, suggesting long-term pressure on markets for liquefied natural gas, a study found.

The Oxford Institute for Energy Studies (OIES) outlined various conflict scenarios that would impact markets for liquefied natural gas (LNG). It found that some cargoes have made it through in coordination with Iran, but there is no sign that market has adjusted to the ongoing security risks.

"Ongoing security risks to commercial shipping in the Strait of Hormuz since the U.S. and Israel launched their war on Iran in late February have kept around 80% of the previously available LNG, from the two Gulf producers Qatar and the UAE, sidelined," the report read.

Industrial Info Resources has monitored damage to regional energy infrastructure since fighting began in late February. Since then, shipping through the Persian Gulf and surrounding waterways has become increasingly risky, with the United Kingdom Maritime Operations Center reporting three vessels were targeted in regional waters on Tuesday.

Damage to regional infrastructure such as the Ras Laffan North and South terminals for Qatari exports of LNG has only added to the supply-side pressures. Qatar is facing a multi-billion-dollar repair bill for drone strikes that have curbed its export potential for years.

Elsewhere, Industrial Info Resources data show US$10 billion worth of investment from LNG installations in the United Arab Emirates (UAE). The largest will be the Ruwais LNG liquefaction export terminal that has a planned capacity of 9.5 million tons per annum of gas in the liquid form.

OIES said in its report that its worse-case scenario--a return to normal by April 2027--is now its base-case scenario. One scenario assumes the LNG supply from Gulf producers will return to about half of the pre-conflict levels by January. Another assumes an October 2027 restart, while a third assumes Qatar and the UAE will keep output at limited levels through next year.

"In other words, there is no real breakthrough on reopening the Strait of Hormuz for the full year and that flows remain at heavily restricted rates," the report read.

Europe Facing the Brunt of the Supply-Side Pressures

Either scenario should spell trouble for European importers looking to shore up supplies ahead of the winter heating season. While North America can expect a milder winter, the same can't be said for Europe. Gas Infrastructure Europe, meanwhile, shows gas storage levels are around 70% full, compared to 89% for the five-year average.

Europe, however, could lean on the United States for supplies. Last year, France and the Netherlands were premier destinations for U.S.-sourced LNG, according to U.S. Energy Department data.

On Wednesday, Industrial Info Resources in its NATGAS Today report put the amount of feed gas supporting LNG exports at 19.6 billion cubic feet, close to a record-high, backing the U.S. position as the world leader in LNG exports. Unconfirmed reports suggest feed gas was as high as 20 billion cubic feet early this week.

Market players, meanwhile, are reaping the benefits. TotalEnergies in a preview of its third-quarter earnings said it expected results from its LNG portfolio to "rise sharply" from the previous period, due in part to the 20% increase in market prices since the second quarter.

TotalEnergies has a minority stake in the Ras Laffan export facility for LNG in Qatar.

By the Numbers

• 80% of Middle East LNG off the market
• 20% jump in market prices should pay off for LNG producer TotalEnergies

Key Takeaways

• Worst-case scenario for LNG shippers is now the base assumption.
• European gas storage levels are below the five-year average heading into winter.

About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, Industrial Info Resources is tracking over 250,000 current and future projects worth $30.2 Trillion (USD).