RBAC’s Edward O’Toole, Robert Kachmar, and Cyrus Brooks joined host Armando Cavanha to discuss many key questions surrounding the evolving situation, including:
- What is at stake with potential disruption to the Strait of Hormuz, a critical chokepoint for global LNG trade?
- Which LNG suppliers and importing countries are most exposed to supply interruptions?
- What global and U.S. market impacts could emerge if disruptions persist?
- How can market simulation and modeling help energy market participants evaluate these scenarios?
Here are some of the key insights:
Global LNG Supply Shock
- Qatar is one of the largest LNG exporters in the world, with about 77 million tons/year of export capacity (~100 bcm).
- A temporary shutdown of Qatari LNG exports could remove ~16% of global LNG supply.
- LNG infrastructure cannot restart instantly; recovery may require weeks to months, extending market disruption.
Regional Impact
Asia
- Asia is heavily dependent on LNG imports
- Potential demand contraction of ~7% due to price spikes and reduced availability
- China, Japan, and South Korea are the most exposed
Europe
- Demand reduction estimated around ~4%
- Europe has partial mitigation through pipeline gas and domestic production
- Low gas storage levels increase vulnerability
Market Dynamics
Price effects
- LNG prices in Europe could reach $18-19/MMbtu
- Higher prices trigger lower demand in industry and power generation
Competition for LNG
- Europe and Asia compete for limited LNG cargoes
- This increases spot market volatility
Industrial Impact
- Electric power generation and other energy intensive industries most affected
- Sectors can respond to price increases through fuel switching and demand reductions
Investment and LNG Supply Outlook
- Long Disruption (6-12 months) could support new LNG export investments across North America
- Many U.S. LNG facilities already operate near full capacity, limiting short-term supply increases.
Iran’s Gas Paradox
Despite holding the second-largest natural gas reserves globally, Iran exports little gas.
- Main reasons:
High domestic consumption - Sanctions restricting LNG technology
- Limited export infrastructure.
Current exports are modest and mostly via pipelines to:
- Turkey
- Iraq
Iran also uses natural gas for:
- Petrochemicals and fertilizers
- Residential heating
- Gas reinjection in oil fields to enhance oil recovery.
Strategic Implications
- Duration of disruption is the critical variable determining global
- Even short outages can affect markets for several
- LNG supply shocks increase:
- price volatility
- geopolitical energy risks
- competition between Europe and
- Natural gas remains structurally important for energy systems, including balancing intermittent renewable generation.
A major disruption in the Persian Gulf LNG supply chain, especially involving Qatar, could remove up to one-sixth of global LNG supply, causing price spikes, demand destruction, and intensified competition between Asia and Europe. The global gas system is resilient but highly sensitive to geopolitical disruptions, particularly in key maritime chokepoints such as the Strait of Hormuz.
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RBAC, Inc. has been the leading provider of market fundamental analysis tools used by the energy industry and related government agencies for over two decades. The GPCM® Market Simulator for North American Gas and LNG™ is the most widely used natural gas market modeling system in North America. RBAC’s G2M2® Market Simulator for Global Gas and LNG™ has been instrumental in understanding evolving global gas and LNG dynamics and is vital in fully understanding the interrelationship between the North American and global gas markets.
