The gas industry’s fears if the Strait of Hormuz is closed

The gas industry’s fears if the Strait of Hormuz is closed
The gas industry’s fears if the Strait of Hormuz is closed

An article from Ports and Corridors. Between Iran and Oman, the Strait of Hormuz measures, at its minimum point, 29 nautical miles, or approximately 53 km. For the record, the Strait of Pas-de-Calais is 31 km away between Calais and Dover. Thus, the two countries bordering the Strait of Hormuz are a stone’s throw away. In the current geopolitical context, the threat of closing this strait weighs heavily.

20% of LNG passes through Hormuz

And this threat is all the more worrying for the gas and oil market. The Strait of Hormuz provides access to the Persian Gulf and some of the world’s major gas producers, such as Qatar. This is no less cause for concern for players in the gas and oil market. In its weekly report, the freight broker Intermodal recalls that 20% of Liquefied Natural Gas (LNG) traffic uses this strategic passage. In addition, the use of this maritime route remains the only alternative. “Unlike oil, which can use the pipeline to Yanbu, gas does not have an alternative solution,” underlines Yiannis Parganas, director of Intermodal’s research department.

Traffic carried out by LNG carriers

In 2023, Qatar and the United Arab Emirates exported 113.8 billion m3. Certainly, Qatar has installed a gas pipeline whose annual capacity is estimated at 20 billion m3. To ensure fluidity, almost all of this traffic is carried out by LNG tankers. In addition, Oman has a gas terminal directly on the Arabian Sea whose use is now close to saturation. And to complete this picture, 80% of the gas production of countries in the region goes to Asia. The remaining 20% ​​are sent to European countries and, to a lesser extent, Kuwait.

Difficult to replace this market

With the landscape outlined, it therefore appears certain that blocking the Strait of Hormuz would create unprecedented disruptions for the energy sector of the recipient countries. “The blockage means a shortage of 310 Mm3 per day of LNG. In addition, liquefaction capacities outside the Persian Gulf are reaching their limits. » Thus, indicates Intermodal, in 2023, Australia has used its capacities at 90%, the United States is at 100%, Malaysia at 85% and Russia has exceeded its limits. Therefore, “it would be difficult to replace this lost volume. Such an event would cause great volatility in the prices of all energy products, such as gas, oil and its derivatives, and coal. This would require a redefinition of business patterns. Asian markets will seek to compensate for the loss of exports from Qatar and the United Arab Emirates. »

The consequences on energy production

For the freight broker, LNG prices would likely skyrocket as Asian countries look to other markets, such as the United States. The latter maintain closer commercial relations with Europe. Additionally, the closure of the Strait of Hormuz and LNG supplies could lead to a decline in gas-fired power generation. However, the alternative to gas for electricity could not be oil. Indeed, a large part of the flows also pass through Hormuz. So, according to Intermodal, “coal could become an alternative energy Source, as we saw during the 2022 Russia-Ukraine conflict.”

An unlikely scenario

This disaster scenario nevertheless seems to be more political fiction than reality. “The likelihood of such action by Iran remains low. The heavy dependence of Asian markets on gas from the Persian Gulf, and the time required for the repercussions to be felt are unlikely,” says Yiannis Parganas. For the head of Intermodal, oil represents between 20% and 25% of Iran’s GDP. So blocking the Strait of Hormuz “would have serious repercussions on its own economy.” But sometimes, the sequence of events can escape all logic.

© An article from the editorial staff of Ports et Corridors. Reproduction prohibited without consent of the author(s).

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