Iran War Disruptions Threaten US LNG Projects, Freeport CEO Warns

The U.S.-Israeli war on Iran has caused disruptions to global liquefied natural gas (LNG) supply chains, and this could delay construction of new LNG projects in the United States. According to Freeport LNG CEO Michael Smith, the conflict's impact could extend beyond oil and gas supply chains, affecting key materials such as steel and components used in manufacturing equipment needed to build LNG plants.

Smith pointed out that American LNG developers were already facing inflationary pressures before the disruptions, driven by labor shortages and rising construction costs. The Middle East conflict has shuttered about 20% of global LNG supply after Iran effectively closed the Strait of Hormuz to export traffic.

With costs escalating, Smith said Freeport LNG would not proceed with its proposed fourth liquefaction train unless it can secure liquefaction fees of $3 per million British thermal units (mmBtu). He also suggested that European buyers should temporarily withdraw from the spot market to allow more cargoes to flow to Asia and reduce upward price pressure there.

Benchmark European gas traded near $17/mmBtu at the Dutch Title Transfer Facility (TTF) on Wednesday, while the Japan-Korea Marker (JKM) in Asia was around $21/mmBtu. Before the Iran conflict, prices were averaging closer to $10 per mmBtu.