Hormuz Strait Crisis Threatens Global LNG Market as EU Gas Storage Levels Plummet
The global liquefied natural gas (LNG) market is facing a crisis due to geopolitical tensions in the Middle East. On Friday, Bangladesh paid $28.03 per million British thermal units for four LNG cargoes, equal to $163 per barrel of oil, while Qatar's attempt to send an empty tanker into the Gulf through the Strait of Hormuz was thwarted after just a few hours.
LNG carriers are more vulnerable to damage and ignition compared to crude tankers, which are harder to damage seriously or ignite. In recent months, two LNG tankers were hit by projectiles in the Strait of Hormuz, igniting their engine rooms, but they managed to transfer their cargoes to other vessels.
EU gas storage levels are at a record low, just under 66% full, despite repeated assurances that the Strait would be back to normal soon. The EU has almost 67 billion cubic meters in storage and is filling it with another nine billion cubic meters monthly, but this may not be enough to meet winter demand.
Nikos Tsafos, Deputy Energy Minister of Greece, suggests that current European storage levels should be adequate, but experts point out that European gas demand has fallen significantly since the Russia-Ukraine war. The required volume of storage is therefore lower, but Europe still cannot rely on a surge of Russian supplies in case of a bleak midwinter.
The strong El Nino weather pattern may bring relatively warm and wet conditions to the continent, reducing gas consumption, but technical breakdowns or sabotage could lead to sharp cold snaps, especially in January and February. If Gulf exports have not revived, Europe will need to outbid Asian countries for LNG imports, with poorer states likely to be the losers.
New LNG supplies are coming online, particularly from the US, Canada, and Nigeria, which should alleviate the crisis by 2028-2030. However, policymakers in Brussels and London should still worry about the impact of US dominance on global energy markets and its potential to twist the arms of its European allies.