LNG

Shell CEO Wael Sawan has expressed reluctance to spend the company’s own equity on US LNG projects, citing the availability of low-cost infrastructure funding. His remark signals a shift towards prioritising shareholder returns over equity commitment in an increasingly oversupplied global LNG market.

Trafigura has agreed to supply 1.5 mtpa of LNG to Korea Gas Corp (KOGAS) over ten years, beginning in 2026. Deliveries will include cargoes sourced from Cheniere Energy.

Glenfarne, lead developer of Alaska LNG, has announced Thailand’s largest traded company PTT signed an agreement to offtake 2 mtpa of LNG from the terminal over a 20-year term. Shipments from Alaska to Asia are priced lower than Henry Hub-indexed cargoes from the U.S. Gulf Coast.

Escalating tensions between Israel and Iran have pushed up crude oil prices to nearly $75 per barrel. The geopolitical risk premium has soared to around $8 per barrel, impacting oil-indexed natural gas contracts as well as term LNG deliveries.

The outlook hinges on Iran’s response. If the regime in Teheran keeps airstrikes focussed on Israeli military sites, as seen in past episodes, price increases may remain contained and temporary, Rystad analysts reckon. But if Iran escalates by disrupting crude oil and LNG shipments through the Strait of Hormuz, or attacks regional energy infrastructure, prices could go through the roof.

In an undisguised threat, US President Donald Trump warned the Iranian regime to stay clear on attacking American military bases in the Middle East, or face dire consequences. 

Nautical chokepoint

The Strait of Hormuz – a key nautical route between the Mediterranean and the Red Sea – is the chokepoint in this scenario. Around 12 million barrels per day of crude oil pass through the strait, over 80% of it bound for Asia. Additionally, over 3.5 billion cubic feet (bfc) of natural gas, or 18% of world shipments, travel through the strait onboard of LNG tankers.

Though there is a pipeline to bypass the Strait of Hormuz, the capacity of that pipeline is limited. Saudi Arabia’s East-West oil pipeline and the UAE’s Habshan-Fujairah oil pipeline together can handle around half of the flow. As for natural gas, the Abqaiq-Yanbu pipeline runs parallel to the East-West Petroline in Saudi Arabia, bypassing the Strait of Hormuz. Its capacity is 290,000 barrels per day, carrying primarily gas liquids.

To date, Iran never succeeded in blocking the Strait of Hormuz which is jointly controlled with Oman. Past tactics included seizing or harassing tankers by jamming their GPS signals to draw them into Iranian waters.

“If Iran were to attempt a full-scale blockade of the Strait, it would likely face strong international pushback,” Rystad head of geopolitical analysis Jorge León warns. Retaliatory actions are to be expected particularly from countries of the Gulf Cooperation Counci, comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

Even Iran’s key ally, China, would be hit hard by higher oil and LNG prices, he underlined, stressing such a move would isolate Iran politically and economically.

Beware shipping rates

Peter Sand, Xeneta chief analyst takes a similar view: “Any closure of the Strait of Hormuz would see services re-routed, with increased reliance on India West Coast ports for connecting the Far East to Indian sub-continent,” he noted. The inevitable disruption and port congestion, as well as the potential for higher oil prices, would cause a spike in ocean freight container and LNG shipping rates.

Average spot rates from Far East to North Europe are up 62% since early December 2023, just before escalation in the Red Sea, while average spot rates to US East Coast – another trade that would ordinarily transit the Suez Canal – are up a staggering 165%, analysts pointed out.

Though India has not yet mandated the dispatch of gas peaking power stations, analysts see upside risk to LNG-burn following a government tender to purchase 1.8 Gigawatt of gas-fuelled generation between April and October. Torrent Power was awarded 1.35 GW, with Kashipur Gama and Kondapalli Lanco taking the rest of the tendered capacity.

Energy Aspects understands the three power producers will receive a fuel price linked to the CME west India LNG prices.

“This power tender alone translates to LNG demand of 0.12 million tons per month over the second quarter of 2025, assuming a 50% load factor and 50% thermal efficiency,” analysts explained, stressing:

“This demand will be price insensitive, as LNG is effectively subsidised by the government.”

Early heatwaves have propelled up electricity demand in India to record levels. The average load factor in March reached 211.3 GW, the highest level ever recorded and a 12.4 GW rise year-on-year. The amount of cooling degree days was 9% above the 10-year norm, but analysts anticipate Indian CCDs will be a staggering 19% above the 10-year average over the next two weeks.

Should this prolonged heatwave materialise, India’s power load jump to new record highs averaging 227 GW over the second quarter, up by 8 GW compared to Q2-23.

Though the LNG tenders are bound to increase gas-burn, coal and solar generation will continue to meet most incremental power demand. In March, coal and solar generation increased by 8.2 GW y/y and 4.9 GW y/y, respectively, while gas generation dropped by 1.3 GW y/y due to peaking power demand.

Upholding a bullish view, analysts said: “We see some upside risks to our Indian LNG demand forecast if the government mandates gas fired plants to run to prevent load shedding and ensure an uninterrupted power supply.”