Key facts
- Global natural gas supply is expected to remain tight until at least next summer.
- The Strait of Hormuz crisis has turned roughly 20% of global LNG supply into something buyers now have to treat as interruptible.
- Buyers are diversifying supply sources to reduce reliance on chokepoints like the Strait of Hormuz.
- Europe and Asia are facing soaring LNG prices due to supply constraints.
- China is seeking long-term LNG supplies from sources not dependent on the Strait of Hormuz.
- Thailand is increasing solar power generation to reduce its reliance on gas imports.
Global natural gas supply is expected to remain tight until at least next summer, potentially leading to sustained demand destruction, according to the International Gas Union. The crisis in the Strait of Hormuz has rendered approximately 20% of global LNG supply interruptible, impacting prices and prompting buyers to seek alternative sources.
LNG exports from Qatar and the UAE remain significantly constrained due to the ongoing situation in the Strait of Hormuz. This has led buyers in Europe and Asia to explore supplies from countries like Canada, Mozambique, Indonesia, Papua New Guinea, and Argentina, and to re-evaluate their reliance on single export routes. The conflict has also driven LNG prices in Asia and Europe to highs not seen since the 2022 crisis, forcing price-sensitive buyers to burn more coal and increase renewable energy targets.
Wood Mackenzie analysts noted that the crisis has undermined the long-held belief in the sufficiency of cheap, fixed-term supply from limited sources. They stated that the market now views supply behind the straits as 'interruptible,' increasing market volatility and complicating contracting decisions. Consequently, the value of more reliable supply has risen.
European buyers have begun seeking Canadian supplies, while China's major LNG importers are reportedly negotiating long-term deals with exporters not dependent on the Strait of Hormuz, aiming to reduce exposure to Gulf deliveries. China, a significant LNG customer of Qatar, is exploring options to diversify its supply portfolio.
The global push for energy security is bolstering support for LNG projects in regions like Mozambique, Timor-Leste, Indonesia, Papua New Guinea, Argentina, and Canada. Energy importers are also diversifying their fuel mix, delivery points, shipping access, and contract structures. The Western Hemisphere, particularly the West Coast of North America, is emerging as a key source of LNG in stable jurisdictions like Canada and Mexico, offering direct access to Asia without transiting chokepoints.
While Qatar's LNG supply is expected to recover, its continued reliability hinges on the navigability of the Strait of Hormuz and its relationship with Iran. In Southeast Asia, some LNG importers are accelerating renewable energy development, with Thailand launching a 10 GW solar power scheme to reduce its dependence on gas imports for electricity generation.