INTERVIEW: IEA ready to act as it closely monitors Middle East oil, gas impact

The International Energy Agency is closely monitoring escalating tensions between Iran and Israel and the impact any damage to oil and gas facilities could have on oil and LNG trade flows, Keisuke Sadamori, IEA's director of energy markets and security told S&P Global Commodity Insights.

"We are following the situation in the Middle East very closely and of course, stand ready to act for oil," Sadamori said in an interview on the sidelines of the LNG Producer Consumer Conference 2024 in Hiroshima late Oct. 6.

With the IEA's security program and strategic petroleum reserves held by member countries, any impact on oil supply is a "primary concern," Sadamori said, adding that the IEA is also looking at the gas situation because Israel is a major gas producer, which exports "a substantial amount of gas to the neighboring region."

Sadamori's remarks came as top Iranian military officials said Oct. 4 that Tehran would target Israel's gas fields, oil refineries and power plants if attacked, stepping up its warnings while energy markets continue to rally on the regional tensions.

US President Joe Biden said Oct. 4 that Israel should think of "alternatives" to striking Iranian oil fields, and that the White House was considering fresh sanctions against Tehran in response to its Oct. 1 missile strikes on Israel.

"We are monitoring the situation very closely and hope that there will be no kind of escalation of the situation and the impact on the physical supply flow of oil and gas from the Middle East region," Sadamori said.

"If there is a major conflict in the region, then the LNG supply, not limited to Israel might be impacted," Sadamori said. "So we are kind of monitoring the situation closely and hope that this will not lead to any serious disruption of oil and gas supply."

Russia sanctions

Asked to comment on the impact of sanctions from the EU and the US on Russian LNG, Sadamori said that the sanctions have primarily targeted the Arctic LNG 2 terminal and Russia's future capacity sofar, with Yamal LNG and other operational plants not materially affected.

"And shipping logistics are a particular vulnerability for the Arctic LNG 2, and sanctions targeting this part of the supply chain have been highly impactful so far," Sadamori said. "So much so that we now consider the Arctic LNG 2 as a non-firm capacity and have excluded it from our LNG balances."

"And also, the latest EU sanctions target Russian LNG exports to off-grid terminals in Finland and Sweden and the transshipment of Russian LNG through EU ports to non-EU countries," Sadamori said. "So the overall impact of the EU sanctions on Russian LNG flows has been relatively modest so far."

Sadamori added that the EU sanctions on Russian LNG are reflected in "the current rather tight market" as a result of "very little amount of additional LNG and export capacity" in recent years.

"So no agreement has been reached on more restrictive measures, such as the EU-wide ban on Russian LNG imports. So I think that this is reflecting, relatively, kind of a tight balance for natural gas in Europe and also at the global scale."

Ukraine-Russia pipeline

Meanwhile, both the gas transit agreement and the interconnect agreement between Russia and Ukraine are set to expire at the end of 2024, with Ukraine having stated that it will not renew these agreements.

"Our baseline expectation is that no Russian gas will be transited through the Ukraine after the end of this year," Sadamori said. "So, there will be a loss in pipeline gas but [it] would not cause kind of a major significant shock at the EU level."

The amount of Russian gas transited through Ukraine accounted for about 4% of the EU's total gas demand last year, Sadamori said, adding that the Ukraine transit route is "far more important for a few Central and Eastern European countries, particularly Austria, Slovakia and Hungary," as these countries received an equivalent of 65% of their total combined gas demand via Ukraine.

Sadamori, however, added that these countries have "ample gas storage capacity, the cross-border interconnections and indirect access to the LNG."

"So in our assessment, the halt of Ukraine transit would not pose an immediate supply security risk, although the cost of supply could go up as the Russian volumes would need to be replaced by more expensive LNG imports into Europe."

"And I would like to point out that this could be a particular difficulty for Moldova, which is more vulnerable than even than those three countries," Sadamori added. "So, there needs to be some kind of international cooperation, in particular between the European countries for avoiding any serious kind of supply disruption for Moldova."