Asian LNG markets assess supply risks amid escalating Israel-Iran conflict

The Israeli attack on Iran early June 13 has heightened tensions across LNG markets in Asia, with shipping companies issuing safety alerts as importers and governments closely monitor potential impacts and assess supply risks, sources told Platts, part of S&P Global Commodity Insights.

The "pre-emptive" strikes by Israel against Iranian nuclear facilities come as Asia, where key importers rely heavily on LNG supplies from Qatar, is about to enter the summer demand season.

"Asia has the highest exposure to LNG exports from the Middle East, as it accounts for around 87%-88% of LNG exports from the region," said Eric Yep, principal analyst, First Take Gas at Commodity Insights.

LNG trading sources in Asia said they are closely monitoring the developing situation and expect impacts on spot prices, although they do not anticipate any immediate supply disruptions at this time.

In Asia, there are reported concerns about potential supply disruptions at the Strait of Hormuz, particularly for China, whose dependency on Qatari LNG imports has increased following its stoppage of US LNG imports since February amid tariff escalations. Qatar has become China's largest LNG supplier, accounting for 33.4% of total imports over January-April, according to data from the General Administration of Customs.

Asia-Pacific spot LNG prices for July jumped June 13, reaching the highest level in over 11 weeks.

Platts assessed the JKM -- the benchmark price for cargo delivered to Northeast Asia -- for July at $13.444/MMBtu, marking a day-over-day increase of 68.6 cents/MMBtu, or 5.38%.

A spokesperson for Japan's JERA, which procures about 10% of LNG that transits the Strait of Hormuz in the Middle East, said: "Depending on future developments in the Middle East situation, there could be effects on supply and demand in the energy market as well as on resource prices, and we are closely monitoring the situation."

Shipping impact

Apart from the immediate price reaction in the spot LNG market, shipping companies are issuing safety alerts and pausing chartering offers as they closely monitor developments.

"We are not making any offers, nor are there any fresh cargoes quoted today," said a chartering executive. He cited the fluidity of the situation and said that so far, the only inquiries received concern whether oil and gas shipowners will continue to operate in the Persian Gulf.

LNG loadings in the Persian Gulf are proceeding as per schedule, but this is unlikely to continue next week if Iran retaliates with full force, he said.

Japan's Mitsui O.S.K. Lines, one of the world's largest ship operators, has issued "safety alerts" for its ships sailing in the Persian Gulf following Israel's attacks on Iran, an MOL spokesperson told Platts on June 13.

Strait of Hormuz

Market participants and analysts do not expect the current situation to escalate into the closure of the Strait of Hormuz, which connects the Persian Gulf to the Arabian Sea and serves as a transit route for some 20 million b/d of seaborne crude, condensate and refined fuels, as well as nearly 11 Bcf/d of LNG.

"I am not overly concerned about the situation in Hormuz at this point, as it has remained stable during previous geopolitical tensions in the area," said a Chinese LNG importer.

"However, it is crucial to monitor how suppliers from the Middle East are preparing for potential developments."

While noting that the likelihood of Iran blocking the Strait of Hormuz is low, "there could be serious impacts on natural gas supply for power generation in Asian countries, where the demand for natural gas for air conditioning tends to peak seasonally during the summer," said Takayuki Nogami, chief economist at the Japan Organization for Metals and Energy Security.

Following Israel's attack on Iran, South Korea's Ministry of Trade, Industry and Energy held an emergency meeting with local LNG and crude oil importers, including state-run Korea Gas Corp., and conducted an emergency review of the country's crude oil and LNG supplies.

"We will be closely monitoring the impact of the airstrikes on the domestic supply and prices of oil and LNG, and respond swiftly to minimize the burden on the national economy," the ministry said.