Hormuz Supply Crisis to Change LNG Market Forever

The ongoing conflict has transformed the 20% of global LNG supply that passes through the Strait of Hormuz into an uncertain and potentially interruptible resource. Following the blockade of the strait, LNG exports from Qatar and the UAE have been significantly limited. Buyers in Europe and Asia are now seeking alternative sources of supply, such as Canada, Mozambique, Indonesia, Papua New Guinea, and Argentina, to reduce their dependence on the Persian Gulf.

The war has driven up LNG prices in Asia and Europe to their highest levels since the 2022 crisis, and European consumers are facing a winter supply shortage while Asian buyers scramble for alternatives, including burning more coal and boosting renewable energy generation. The crisis has challenged the long-standing belief among buyers that relying on cheap, fixed-term supply from one or two sources is sufficient.

Wood Mackenzie analysts note that the market now views the Hormuz-supplied 20% of global LNG as interruptible, even if it returns, it could be subject to future constraints, adding market volatility and complicating contract decisions. This shift in perspective has led buyers to prioritize energy security and diversify their supply sources.

European buyers have begun exploring purchases from Canada, while China is in talks with exporters to secure long-term, non-Hormuz-dependent LNG supplies. The transition to alternative LNG sources, coupled with fuel diversification, access point flexibility, and contract structuring, reflects a broader energy security strategy. As the Gulf state of Qatar eventually recovers its Hormuz supply, its position as a key LNG provider may strengthen, but its ability to retain buyer confidence hinges on maintaining Strait of Hormuz navigability and Iran relations.

Meanwhile, Southeast Asian buyers, who have historically relied heavily on Qatar, are accelerating their renewable energy initiatives to reduce dependence on gas imports and mitigate future supply risks.