Why the Strait of Hormuz Closure Hits the LNG Market Harder Than Oil
The recent disruption in the Strait of Hormuz has sent immediate shockwaves through global energy markets, with oil prices surging on Monday as traffic through the critical chokepoint neared a standstill. However, analysts warn that the longer-term implications may be far more severe for the liquefied natural gas (LNG) market, exposing a structural vulnerability that crude oil does not share.
Approximately 20% of the world’s seaborne LNG transits the Strait, with the vast majority of that volume originating from Qatar’s massive Ras Laffan Industrial City. Following an Iranian drone attack, Qatar halted its LNG output last week, triggering a sharp response in global gas prices. European natural gas futures leaped 63% last week—their biggest percentage gain since the immediate aftermath of Russia’s 2022 invasion of Ukraine. Prices in Asia are even higher, trading at $23.40 per million British thermal units (mmBtu) on Monday morning, reflecting the region’s heavy reliance on Qatari cargoes.
The Inflexibility of Gas: Why LNG Can’t Simply Be Rerouted
The crisis highlights a key difference between moving oil and moving gas. While nations like Saudi Arabia and the UAE can partially redirect crude oil through pipelines when sea lanes are threatened, no comparable infrastructure exists for LNG. “Part of Saudi Arabia’s and UAE’s crude has been re-routed through pipelines, but the same infrastructure doesn’t exist for gas,” explained Alex Munton, Director of Global Gas and LNG Research at Rapidan Energy Group. “Put another way, a ship is required to transport it long distances.”
This inflexibility is compounded by extreme production concentration. While Middle Eastern oil output comes from numerous fields across multiple countries, global LNG supply is heavily centralized. “Many states in the Middle East produce oil, but gas production is concentrated at one industrial complex in Qatar, making the market much more vulnerable,” Munton noted.
The Daunting Challenge of Restarting Qatar’s LNG Engine
The real risk, according to Munton, lies not in the shutdown itself but in the protracted and complex process of restarting Qatar’s LNG operations. Ras Laffan is not a simple wellhead that can be flipped back on. Liquefying natural gas is a sophisticated, energy-intensive industrial process that requires precise cooling and stabilization of the gas.
“The real risk… is how difficult it will be to restart Qatar’s LNG production at Ras Laffan once traffic resumes in the Strait,” Munton said. Rapidan Energy predicts that LNG exports will not resume until there is “100% certainty” that it is safe for tankers to transit the Hormuz Strait. Insuring a $250 million LNG tanker is one factor, but the operational reality is that the entire plant cannot be ramped up or down based on fleeting geopolitical assessments. A full restart will take weeks, not days—a timeline with no modern precedent, as the entire Ras Laffan complex has never been fully taken offline before.
“I don’t think in the first few days of this conflict—we’re only a week in—that there is an appreciation for the length of time that Qatar is going to be offline and the effect it will have on global supply and the global markets,” Munton told CNBC.
Global Supply Tightens, and the Focus Shifts to Demand
With Qatar’s exports offline, the world’s largest LNG exporter, the United States, is already producing near its maximum capacity. The lack of immediate spare capacity worldwide means the market must balance through demand destruction—reducing consumption by switching to alternatives like coal or curtailing industrial activity.
As the price spread between Europe and Asia widens, the market is already reacting. Some LNG vessels originally destined for Europe are now diverting to Asia to capture higher prices, a physical manifestation of the supply crunch.
A “Sitting Duck”? The Long-Term Geopolitical Shadow
Munton and Rapidan Energy caution that the current halt, triggered by a broader regional conflict, may not be the worst-case scenario. They view prior Iranian attacks on the Ras Laffan complex as “a warning shot that wasn’t the real deal.” The facility’s concentration presents a singular, high-value target.
“It’s a sitting duck,” Munton stated bluntly. “If Iran wanted to do major damage to Qatar’s LNG capacity, it could. … There is no way of defending completely against an Iranian attack if Iran was hell bent on damaging the plant.”
He contrasted this with oil production, which is geographically dispersed. “It’s not like one node can take out all Middle East oil production, because there’s just too many fields, there’s too many countries, there’s too many plants and facilities … but with LNG it’s one facility. It’s a gigantic complex, but it’s just one facility.”
QatarEnergy has already signaled the long-term implications, announcing a delay to its planned LNG expansion until 2027, according to Bloomberg. The current crisis underscores a fundamental truth: the global gas market’s dependence on a single, complex, and geographically exposed hub creates a fragility that may define energy security for years to come.
QatarEnergy’s liquefied natural gas (LNG) production facilities in Ras Laffan Industrial City, Qatar. The complex’s concentration makes it a unique vulnerability in the global energy system. (Stringer | Reuters)
This article is based on reporting and analysis from CNBC, with additional context from Bloomberg and Reuters. Data on price movements and production capacity is cited from these sources. For continuous updates on this developing story and its market impact, choose CNBC as your preferred source on Google and never miss a moment from the most trusted name in business news.
