The Last Drop: Gulf’s Final LNG Shipments Push World to Energy Cliff

Nations globally are confronting a precipice as the supply of liquefied natural gas from the Gulf region ceases abruptly within the coming ten days, when a handful of the final cargo vessels from that area reach their respective ports.

Qatar, a nation responsible for manufacturing twenty percent of global liquefied natural gas, was compelled to halt shipments following Iran’s blockade of the Hormuz Strait, located at the entrance to the Gulf, early in the hostilities.

Since then, its colossal Ras Laffan LNG facility has sustained immense harm, having been targeted by Iranian projectiles this week, causing natural gas costs in Asia and Europe to surge dramatically.

However, numerous LNG vessels that took on cargo in Qatar and the United Arab Emirates were already en route to their terminals prior to the outbreak of the conflict, as per an assessment by independent maritime brokerage Affinity, implying that certain consumers are only just beginning to experience the impact of diminished provision.

Nations dependent on foreign energy to fuel their economies will be compelled to remit exorbitant sums to vie for LNG provisions from the US and other sources, transition to alternative energy sources, or mandate reduced consumption by residential and commercial sectors.

Numerous Asian states lacking in petroleum and natural gas reserves have already implemented policies to prevent deficiencies, for instance, instituting four-day workweeks.

Merely a single LNG consignment from the Gulf is still slated for arrival in Asia, a continent that procures nearly 90 percent of the area’s production, based on vessel-tracking information. An additional six LNG deliveries are anticipated in Europe.

Pakistan finds itself in an exceptionally precarious predicament. Nearly ninety-nine percent of its LNG procurements originated from Qatar in the preceding year. The final consignments it received from Ras Laffan reached port on the second and third days following the commencement of the Iran conflict.

The nation’s two LNG import facilities have scaled back their activities to merely one-sixth of typical capacities and are set to cease gas distribution entirely by month’s end, as reported by two individuals apprised of the circumstances.

One of these two facilities, under the proprietorship of Pakistan GasPort, is expected to deplete its LNG supply for processing within the next few days, stated its chairman and chief executive, Iqbal Ahmed. “Subsequently, we will be entirely without supply,” he declared. “We possess no information regarding the arrival of the subsequent shipment.”

Prior to the commencement of US and Israeli military actions against Iran, Islamabad was contending with an excess of LNG and had requested QatarEnergy, a provider, to divert twenty-four shipments originally slated for Pakistan this year. Additionally, it requested Eni of Italy to re-route an extra eleven consignments.

The government-owned purchasing entity, Pakistan LNG, petitioned Eni to dispatch a portion of those consignments subsequent to the outbreak of hostilities, as per an individual knowledgeable about the situation, however, the appeal proved fruitless. Eni refused to provide a statement.

Pakistan LNG additionally reached out to merchants and providers across Europe, Oman, the US, Azerbaijan, and Africa, yet every entity quoted figures that were excessively steep for Pakistan to countenance, the source disclosed.

Pakistan LNG refrained from making a statement.

Acquiring LNG via the immediate market is excessively costly for Pakistan. The valuations for Asian LNG, as indicated by the Platts JKM standard, have escalated twofold since the conflict commenced, reaching approximately $23 per million British thermal units (MMBtu). Transportation expenditures have increased due to elevated charter fees and extended transit times to other LNG providers.

Pakistan will probably resort to pricier and more polluting furnace oil extensively for power generation should the hostilities persist. Nonetheless, “I foresee us enduring one profoundly challenging year, succeeded by an additional two or three arduous years,” articulated GasPort’s Ahmed. 

Bangladesh faces susceptibility for comparable motives, though to a reduced degree, as it obtains certain LNG shipments from beyond the Gulf. Moreover, it would contend with difficulty in remitting exorbitant sums to substitute LNG it would have otherwise procured from the Gulf, and is deficient in alternative energy sources. The administration has commenced gas conservation policies, encompassing the closure of tertiary educational institutions.

Being among the primary purchasers of LNG from the Gulf, Taiwan is contending with the repercussions of its endeavor to transition from coal to more environmentally friendly gas, concurrently discontinuing nuclear power prior to a complete pivot to renewable sources. It acted swiftly to procure substitute shipments directly subsequent to the commencement of the conflict.

By March 10, the Ministry of Economic Affairs declared that twenty-two consignments from the Gulf had been secured, thereby guaranteeing an absence of provision worries until the close of April. Notwithstanding, power consumption customarily escalates during the summer season, escalating the potential for “acute energy deficits” should the Hormuz Strait stay inaccessible, according to Kevin Li of the Atlantic Council’s Global Energy Center.

China and Japan are also anticipated to procure certain immediate LNG shipments to compensate for the deficiency from the Gulf, merchants indicate. “Our strategy involves purchasing from the JKM spot market to fulfill provisions,” stated a Japanese LNG merchant. However, merchants and public services are adopting a cautious, observational stance, and intend to revert to coal, they affirmed. 

Japanese public service providers are currently deferring LNG acquisitions, another merchant validated. “Merely a handful of purchasers are contemplating immediate shipments.” Although Japan ranks as the globe’s second-largest LNG importer, following China, it demonstrates less susceptibility to the interruption of deliveries from the Middle East, given that merely six percent of its provision transits via the Hormuz Strait. 

China procures thirty percent of its LNG from the Gulf, however, it possesses a degree of indigenous gas output and can transition to electricity generation fueled by coal if requisite.

Japan is also poised to utilize increased amounts of coal and nuclear power for electricity production. In January, it partially recommenced activities at the planet’s largest nuclear facility, situated in the Niigata prefecture.

Until a greater number of vessels are permitted passage through the Hormuz Strait, worldwide LNG provisions will persist as constrained.

Even subsequently, a reduced volume will be accessible to the market, given that seventeen percent of Qatar’s LNG production capability will remain inoperable for a period spanning three to five years due to the assaults on Ras Laffan, as stated by the nation’s energy minister, Saad Al-Kaabi, this week.

“This implies that we shall be obliged to invoke force majeure for a duration of up to five years concerning certain protracted LNG agreements,” Al-Kaabi affirmed. 

Information graphic design executed by Steven Bernard and Nassos Stylianou