00:00The escalating conflict in the Middle East is raising serious concerns about disruptions to one of the world's most critical
00:06energy choke points,
00:07the Strait of Hormuz, a route that carries a significant share of global oil and LNG shipments.
00:13At the same time, questions are emerging over shifting trade dynamics, including Chinese yuan-denominated energy transactions being considered by
00:20Iran.
00:21So what does this mean for global gas supply, prices and energy security, especially for major LNG importing regions?
00:28Joining us now from London is a reporter closely tracking the developments in the global LNG market, Irfan Jaffa, the
00:34global gas and LNG writer, Argus Media.
00:36Thank you so much for joining us this morning.
00:38As we want to look at the major shock across global energy markets following the escalation in the Iran conflict,
00:44from your vantage point, how severe is the disruption to the global LNG market right now,
00:49particularly after the closure of the Strait of Hormuz and the halt in some Gulf energy shipments?
00:55Hello, thank you for having me.
00:58While the impact to the global energy market was seen right before the closure of the Strait of Hormuz,
01:05as we would normally see when duplical tensions arise in the region,
01:11the Israeli Energy Ministry would instruct domestic gas producers to suspend operations.
01:17So when this happened at the start of March or the late February,
01:22we witnessed suspension in some gas fields in Israel and Israel exports some of its gas to Egypt and Jordan.
01:32So what this led to was a significant drop in gas exports from Israel to Egypt and Jordan.
01:39And that led to Egypt issuing some spot requirements for LNG cargos.
01:45We heard that the Egyptian state-owned gas distributor, eGas, has issued at least five,
01:53has basically sought five LNG cargos for March delivery.
01:59And at the moment, we are hearing they may be looking for an April cargo as well.
02:03So that was really the impact before the closure of the Strait of Hormuz.
02:09And then following that, we have witnessed countries that were really, really reliant on Qatari and UAE cargos,
02:20such as Bangladesh and India.
02:22They similarly issued spot requirements for deliveries for replacement cargos,
02:28to replace these lost cargos from Qatar and the UAE.
02:33Irfan, this is definitely worrying as we look at the price spike and supply tightness,
02:37especially because Asian energy spot prices have reportedly surged sharply in recent weeks.
02:42So is the market reacting primarily to physical supply disruptions from the Gulf?
02:47Or are we now seeing a broader panic-driven scramble for cargos across the Atlantic and also Pacific basins?
02:56As I mentioned, at the start, we definitely saw panic buying from, for example, Bangladesh and India,
03:02because they rely heavily on Qatari and UAE cargos.
03:06So they were straight into the market seeking cargos.
03:12If we were to look at Pakistan, for example, Pakistan relies on their whole LNG portfolio is entirely reliant on
03:21Qatari cargos.
03:2299% of their cargo deliveries come from Qatar.
03:24But given how high spot prices were when the crisis broke up,
03:30they could not afford, and they still can't afford, cargos at these levels.
03:34So they decided to shift to coal, and to the extent of they even are ramping up domestic gas production.
03:42To give you a bit of context, Pakistan had to slow down its domestic gas production previously
03:49because they had long-term agreements with Qatar, and these cargoes were not divertible elsewhere.
03:56So they had no choice other than to reduce domestic gas production just to avoid from the national transmission grid
04:05to be overloaded.
04:06But at the moment, we heard that they are considering to ramp up domestic gas exports to meet downstream consumption.
04:13In the longer term, if disruptions persist on shipping rates, that's escalate further.
04:18How vulnerable is the global energy supply chain, especially for import-dependent regions like Europe and Asia,
04:24given how the street of Hormos has effectively become the centre of global energy anxiety?
04:31Well, I am expecting demand disruption to happen in industries that cannot afford to pay for gas prices at these
04:39levels.
04:40For example, we are hearing India is buying at $15 to $16 per million BTU.
04:46This is not the usual levels that India would buy cargos at.
04:50India would normally buy cargos in the spot market when prices are below $10 per million BTU.
04:56So we can expect demand disruption.
04:58Similarly, in Europe, we are seeing quite a shift towards coal-fired units across Europe
05:07are becoming more economical for power generators to operate rather than using gas-fired generators.
05:14Yep.
05:15So that is really what we are seeing.
05:17And maybe more price-sensitive buyers are less likely to use LNG at the moment
05:23and may just look towards alternative fuels.
05:26Still in the context of Asia, because we see that Asia could be hit at the hardest because it relies
05:31heavily on LNG imports.
05:33This is said by many analysts.
05:35So are major buyers like China, Japan and South Korea already competing more aggressively for cargos?
05:40And could this trigger another global beating war for gas?
05:46Interestingly, we saw prices increasing significantly and in such a volatile manner at the start of the crisis.
05:54But as of recently, for the past few days or the past week, we didn't really see much spot transaction
06:02coming from Northeast Asia,
06:04especially China.
06:05China hasn't really been in the spot market for cargos.
06:08South Korea has been shifting to coal.
06:11For example, they are issuing an import tender for coal in May.
06:15So that kind of puts expectation that they are looking that this crisis is not going to end anytime soon.
06:21As for Japan, Japan has basically, they're not really looking to buy in the spot market.
06:28However, Taiwan, Taiwan has a huge exposure to Katari cargos.
06:32But as of last week, we heard from the ministry that they have secured 20 out of the 22 LNG
06:40cargos that they need.
06:42Two are still under discussions with government bilateral discussions.
06:47So we are seeing less of a bidding war.
06:50It's more to now buyers and sellers trying to find a fair value of price of where LNG cargos are
06:57going to be,
06:57which is very interesting because we are hearing various price levels being quoted by buyers and producers.
07:06So it's really, everyone is really looking at, okay, who's actually brave enough to buy spot cargos?
07:13And they actually peg it to those levels.
07:17Irfan, let's look at Europe now, because Europe spent the past few years diversifying away from Russian pipeline gas.
07:23But with Middle Eastern LNG flows now under threat, are European energy markets facing another structural supply shock just as
07:30they head into the next storage cycle?
07:36That's a good question.
07:37So at the present moment, Europe doesn't really see the risk for the balance of winter.
07:43We are still in winter in Europe.
07:45But this winter has been considerably warmer than we would expect it to be.
07:52But at the moment, the current, the present concern is about restocking for the next winter.
07:58Because as you would imagine, European gas markets trade at futures.
08:05So presently, the winter-summer spread is at a premium, is at a discount, which means that it's more expensive,
08:15prices in the summer are more expensive than the winter.
08:18So this doesn't really give a financial incentive for storage operators or for firms to inject into European storages in
08:27the winter for next winter.
08:29So that is really giving the headache for European firms and really trying to figure out how are they going
08:38to restock gas for the next winter.
08:41Another intriguing development is Iran reportedly pushing for oil transactions in Chinese yuan for vessels passing through the Strait of
08:49Hormus.
08:49So if energy trade begins shifting away from the US dollar, could that reshape how energy and also oil are
08:56priced or traded globally moving forward?
09:00Well, there's not a lot of scope for yuan-dominated energy trade as we speak for now.
09:09Because after Qatar, the US is actually the biggest LNG exporter and producer with more liquefaction capacity coming online for
09:18the next few years.
09:19So it's very unlikely that any LNG transactions are going to shift to another currency denomination.
09:28And as we know, the current US administration is very likely to impose trade restrictions on their counterparties.
09:37So I believe that buyers of US LNG are less likely to, you know, rattle the cage, as you would
09:46say, just in case they get imposed another tariff or another trade restriction,
09:52because they know that the US is basically has a big pool of supply and they don't want to be
09:58imposed like another tariff, but they still need the LNG.
10:00All right, finally, the longer-term market reordering.
10:03Let's look at the stepping back from the immediate crisis.
10:06Could this conflict actually ultimately accelerate the structural changes in global energy markets,
10:11from diversification of LNG supply to new trading hubs and currencies emerging in global gas trade?
10:20I would say what we have been hearing from the market is mid- to long-term negotiations have stalled
10:26since the crisis started.
10:29Not only mid- to long-term negotiations around Middle East supply, but also supply globally.
10:38People are, trade market participants are still watching to see how this crisis develops.
10:44But obviously, the topic on diversification has gone beyond the bias.
10:50It's about the sellers on how are they supposed or how can they diversify the supply pool in case something
10:56like this happens.
10:57Before this, we never really expected the closure of the straight home moves.
11:01But now we see that's a proof of concept that's going to happen.
11:04So we are expecting that and it's already underway.
11:08For example, Qatar Energy has 70% stake on the U.S. Golden Pass Export Terminal, which is planned to
11:14come online this month.
11:16So it may give a suggestion, it may suggest that these cargoes, replacement cargoes can come from that terminal.
11:24And the UAE investment arm of Aetnok XRG, they have been increasing their global energy portfolio.
11:32They are aiming to have about 20 to 25 million tons per year of energy portfolio elsewhere, including the U
11:39.S. and Mozambique.
11:40So it really, I mean, this diversification talk has started before the crisis happened.
11:50So I'm guessing this is going to be a catalyst in the market for further diversification efforts.
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