The International Energy Agency (IEA) has revealed in its quarterly report that the ongoing conflict in the Middle East could lead to significant losses in liquefied natural gas (LNG) supplies, reaching approximately 120 billion m3, which represents 15% of the expected global supplies. The agency noted that every month that passes without LNG shipments transiting through the Strait of Hormuz results in an estimated loss of around 10 billion m3.
The agency added that the commissioning of new liquefaction facilities could help offset these losses in the long term; however, the impact on growth will be noticeable this year and next, delaying the effect of the anticipated supply wave from new projects.
Details of the Event
The growth of LNG supplies halted last March following the closure of the Strait of Hormuz, leading to a decrease in total LNG production in both Qatar and the UAE by about 10 billion cubic meters during the month. Total losses in LNG supplies from these two countries are expected to reach around 20 billion cubic meters during March and April.
The agency also highlighted that damages from attacks on LNG facilities in Qatar could reduce the country's LNG production by approximately 70 billion cubic meters by 2030, should the repair period take four years. Additionally, delays in the expansion project of the North Field by QatarEnergy could lead to a decrease in LNG supplies by about 20 billion cubic meters between 2026 and 2030.
Background & Context
Qatar and the UAE are among the leading LNG producers globally, significantly contributing to meeting global market demands. However, political crises and regional conflicts can greatly affect the stability of these supplies. The closure of the Strait of Hormuz, one of the most crucial maritime routes for energy transport, complicates the situation and impacts global prices.
Historically, the region has experienced numerous crises affecting energy supplies, making it susceptible to fluctuations. The ongoing conflict in the Middle East could exacerbate these crises, negatively reflecting on global markets.
Impact & Consequences
The IEA expects the effects of the closure of the Strait of Hormuz to continue influencing demand this year, leading to a downward revision of its demand forecasts. These estimates could affect companies' investments in new LNG projects, threatening to reduce future supplies.
Moreover, the decline in LNG supplies could lead to rising prices in global markets, impacting importing countries and increasing energy costs. This situation may place additional pressure on economies that heavily rely on natural gas.
Regional Significance
This situation poses a significant challenge for Arab gas-producing countries, as it may affect their economic stability. The decline in LNG supplies could increase political and economic tensions in the region, potentially reflecting on relations between Arab states.
In conclusion, the conflict in the Middle East significantly impacts LNG supplies, threatening the stability of global markets and increasing challenges for producing countries. The current situation requires a swift response from governments and companies to ensure supply sustainability and avoid future crises.