Hormuz Supply Crisis to Change LNG Market Forever
- The Hormuz crisis has effectively made around 20% of global LNG supply “interruptible,” pushing buyers to prioritize security and geographic diversification.
- Europe and Asia are seeking LNG beyond the Gulf, boosting interest in projects in Canada, Mozambique, Indonesia, Papua New Guinea and Argentina.
- The crisis is reshaping energy strategies beyond LNG, with importers diversifying fuels, routes and contracts while countries such as Thailand accelerate renewables to reduce gas dependence.
The Strait of Hormuz crisis has turned roughly 20% of global LNG supply into something buyers now have to treat as interruptible.
Nearly seven months after traffic through the strait collapsed, LNG exports from Qatar and the UAE remain severely constrained. Buyers in Europe and Asia are responding by looking for supply that does not depend on Hormuz at all—from Canada, Mozambique, Indonesia, Papua New Guinea and Argentina—and reconsidering how much of their future gas demand they are willing to tie to a single export route.
The war has changed the near-term outlook and sent LNG prices in Asia and Europe soaring to the highs last seen in the 2022 crisis. Europe is hard-pressed for supply ahead of winter, while price-sensitive buyers in Asia are scrambling for alternatives, burning more coal, and boosting renewable energy generation targets to avoid supply crunches and hefty gas import bills when the next crisis hits the energy market.
Diversification Drive
The current crisis goes well beyond the concerns about winter supply in Europe or how high prices in Asia destroy demand. The war and the Strait of Hormuz supply crunch have undermined the decade-old belief among buyers that relying on cheap fixed-term supply from one or two sources is enough.Related: Saudi Arabia Restarts East-West Oil Pipeline
“The market seems now to be viewing the 20% of global supply behind the straits as ‘interruptible’ – even if it does return, it could easily be constrained again, feeding market volatility and further complicating contracting decisions,” Wood Mackenzie analysts said about their conversations with LNG leaders at the Gastech 2026 conference in Bangkok earlier this month.
“An important consequence is that the value of more reliable supply has increased,” WoodMac’s analysts say.
Following the halt to LNG shipments from the Strait of Hormuz for months, buyers have started to think about energy security more than anything else and are busy diversifying their sources of supply.
European buyers started exploring purchases from Canada after it became clear in April that U.S.-Iran ceasefires aren’t bringing back Qatar’s supply to the market.
China’s giant state LNG importers are reportedly in talks to secure long-term LNG supplies from exporters that don’t need the Strait of Hormuz, as the world’s biggest LNG buyer seeks to reduce its exposure to gas deliveries from the Persian Gulf.
China is the top LNG customer of Qatar, and it sourced nearly 30% of its LNG supply from the Gulf exporter last year.
Some of China’s state-controlled majors have signed long-term deals in recent years with Qatar in exchange for minority stakes in some of the expansion projects of the Gulf producer, part of which will be delayed due to the war.
But Beijing is exploring options to reduce its exposure to Gulf supply. Some of the biggest Chinese LNG buyers, including PetroChina and Sinopec, are in talks with exporters for potential deliveries starting before 2030 for a period of at least ten years, sources familiar with the plans told Bloomberg in July.
The global drive among buyers to secure LNG supply that’s not threatened by geopolitically charged chokepoints is strengthening the case for LNG projects in Mozambique, Timor-Leste, Indonesia, Papua New Guinea, Argentina, and Canada to move forward.
“Buyers, governments and export credit agencies are increasingly supportive of this supply diversification as they push for energy security, though the set of risks these projects carry remains an obstacle for some,” WoodMac said.
Priorities Realigned
But energy importers are diversifying not only their source of supply. They will be increasingly looking to diversify “among fuels, energies, delivery entry points, shipping access, technologies, and contract and price structures,” Leslie Palti-Guzman, a senior associate (non-resident) with the Energy Security and Climate Change Program at the Washington-based Center for Strategic and International Studies, said last month.
The Western Hemisphere, especially the West Coast of North America, is gaining prominence as a new source of LNG supply in stable jurisdictions such as Canada and Mexico, according to Palti-Guzman. Such supply has direct access to Asia without the need to use any of the chokepoints: the Strait of Hormuz, the Panama Canal, the Suez Canal, or the Straits of Malacca.
Qatar’s LNG supply will recover eventually and could position the Gulf state as a winner in the long term. However, the recovery and the faith buyers will have in continued access to the Qatari supply will depend on uninterrupted navigability of the Strait of Hormuz and Qatar’s relationship with Iran, Palti-Guzman said.
Buyers nevertheless are now open to exploring LNG supply that’s not coming from Qatar and the U.S., to diversify energy sources and hedge against the risk of depending on a limited number of supply options.
Some LNG importers in Southeast Asia, which have relied on Qatar for too much for too long, have moved to accelerate their renewable energy buildout to boost the share of solar power in their electricity mix and reduce dependence on gas imports.
Thailand, for example, is launching a public solar power scheme of 10 gigawatts (GW) that would cover about 1 million households. The rooftop solar panels are expected to reduce Thailand’s massive reliance on gas for electricity generation.
Thailand needs to diversify its energy sources “because otherwise we’ll be subjected to what’s happening in the Middle East forever,” Energy Minister Akanat Promphan said in comments to the solar scheme, as carried by the Financial Times.
By Tsvetana Paraskova for Oilprice.com
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