Impact of war on LNG markets

The closure of the Strait of Hormuz has stopped about 20 per cent of global LNG supply from reaching markets and has sent gas prices about 50 per cent up from pre-war levels. But it has also presented the East Med with an unexpected opportunity: to create an LNG hub to export surplus regional gas to Europe’s and Asia’s hungry energy markets. In its latest outlook, Shell sees long-term global demand for LNG continuing to grow because of its flexibility and reliability, even as the conflict in the Middle East brings tightness and volatility to prices.

Shell expects consumption, that totaled 423 million tonnes per annum (MTPA) in 2025, to surge by at least 45 per cent with demand ranging between 610-780 MTPA by 2050, despite the impact of the Iran war. Global LNG capacity is undergoing a major expansion wave, with about 220 MTPA of new capacity expected to be added globally by 2030, mostly by the US and Qatar.

• US is the largest LNG exporter, with planned future exports potentially adding 100 MTPA to reach over 180 MTPA by 2030, making up one-third of global supply.

• Qatar is executing a massive expansion of its North Field projects, with plans to increase export capacity from 77 MTPA to 142 MTPA by 2030. But these are now facing challenges as a result of the war. LNG exports from the Persian Gulf and the war There are two liquefaction/ export plants In the Persian Gulf, at Ras-Laffan (Qatar) – the world’s largest – and Das Island (UAE).

LNG carriers departing from these facilities must pass through the Strait of Hormuz to reach global markets. In the four-year period prior to the war, LNG exports from Qatar were about 77 MTPA, and from UAE in a range of 5-5.7 MPTA. Their combined share of global LNG exports was about 20 per cent over this period. But with the Strait of Hormuz closed, this is blocked from reaching the wider market. By 20 March gas prices at the Dutch TTF hub increased to over $18/mmBTU, settling at about $13/mmBTU now, still 50 per cent higher than prewar levels.

The war has shifted LNG markets from a supply “wave” to a potential supply “shortfall” for the remainder of the decade. The biggest impact has been on Qatar’s LNG exports and infrastructure. On March 18, Iranian missiles struck Ras-Laffan Industrial City, Qatar’s primary LNG export hub. This caused:

• Capacity loss: The attacks damaged two of QatarEnergy’s 14 LNG processing trains, knocking-out 12.8 MTPA (about 17 per cent) of its existing export capacity

• Repair timeline: QatarEnergy estimates repairs will take 3-5 years, sidelining this capacity through at least 2029-2030.

• Force majeure: As a result, QatarEnergy has declared force majeure on long-term contracts to major buyers in Italy, Belgium, South Korea and China. But the war has also led to delays to the North Field expansion intended to drive growth by 65 MTPA.

This is now facing significant delays. Expansion units originally planned to begin production in mid-2026 have been halted due to regional risk, rising insurance costs, and labour constraints. The International Energy Agency (IEA) has reported that delays could reduce the projected global LNG supply capacity by over 90 MTPA, about 15 per cent of the expected total, between 2026- 2030.

This represents delayed or lost future capacity additions that were expected to come online by 2030. The biggest shortfall is expected to be experienced by Qatar, 35 – 40 per cent of the total, due to war disruption, Hormuz risk and other delays. US follows with 20 – 25 per cent due to construction delays, permitting and cost inflation. Russia’s LNG projects are also facing delays due to sanctions.

Even in the best case, LNG markets are expected to remain tight until at least 2028, keeping prices high, in the range $12-$15/mmBTU. However, after 2028 markets should rebalance, with most delayed LNG capacity finally becoming operational. Prices should then stabilise in the range $8-$10/mmBTU.

It should be noted here that should Cyprus’ stalled LNG import project recover and become operational by 2028, Cyprus could benefit from low-cost LNG to the extent that electricity prices could be reduced by 40 per cent. With the US planning to double its LNG export capacity, and access to very cheap gas, it stands to benefit as the war in Iran reshapes oil and gas flows, but Europe and Asia are wary of becoming too reliant on American supply.

EAST MED REGION

With the EU ban on Russian LNG imports under shortterm contracts ttaking effect last week, the developing situation is creating an unexpected opportunity for the East Med. Egypt, until recently an exporter of LNG, has become a major importer due to declining domestic gas production, now at about 41 bcm/yr, having peaked at close to 70 bcm/yr in 2019.

At the same time, with its ever-increasing population its power demand is rising rapidly, by 3 per cent-5 per cent/yr. As a result, since 2023 Egypt has turned to LNG imports to keep power generation running, especially in the summer. The Iran war has made it harder and more expensive to secure LNG, impacting its beleaguered finances. However, with its two liquefaction plants at Damietta and Idku, with total capacity exceeding 12 MTPA, Egypt is well-placed to take advantage of the developing situation and use these to export East Med gas from Israel and Cyprus to Europe and Asia.

Negotiations are already in progress to export gas from Cyprus’ Cronos gas-field to Damietta for this purpose. But with Israel already committed to export over 20 bcm/yr gas to Egypt, there is regional concern that committing even more East Med gas to Egypt may be too risky.

This provides ExxonMobil and Cyprus an opportunity to revive the idea of constructing a world-class LNG export plant in Cyprus with 10-15 MTPA capacity. ExxonMobil’s long-stated preference is to develop a stand-alone liquefaction plant, but that requires over 400 bcm.

With the company declaring that Pegasus and Glaucus hold about 200 bcm, Cyprus’ current recoverable gas reserves total about 480 bcm. Even though there are already commitments in place to export Aphrodite and Cronos gas to Egypt, both projects are still facing headwinds. In addition, Israel still has about 110-140 bcm gas available for export.

These and the recent developments in the Middle East and Europe’s needs for secure gas – that, despite REPowerEU, do not seem to be going away – support bringing back the idea of an LNG export plant at Vasilikos.

Negotiations for this were welladvanced in 2012/2013, until intervention – with no clear plans – by the then newly elected government put an end to them. The idea remains a valid option today, but Cyprus may have to restore its lost credibility.