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LNG prices could double if Strait of Hormuz closed: Platts Analytics

Dubai — Spot liquefied natural gas prices could double if the Strait of Hormuz is disrupted, effectively placing all of Qatar's export capacity under force majeure, S&P Global Platts Analytics said in its latest Global LNG Monthly Forecast.

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While Platts Analytics did not expect the waterway to be closed, if it were to occur it could potentially wipe out about 280 million cu m/d of Qatari volume, or 22% of global demand, it said in the report.

Unlike Saudi Arabia and Abu Dhabi, Qatar does not have export routes that can be used as an alternative that bypass the Strait of Hormuz, Platts Analytics said.

"This massive exogenous supply shock easily holds the potential to double spot LNG prices in short order," Platts Analytics said, adding there was not enough spare shipping capacity to offset the loss.

"Demand destruction from a price shock would make up the difference and lead to a market equilibrium at a notably higher price point. From a longer term perspective, the event would prove problematic for Qatari efforts at renewing expiring contracts."

If all other producers ramped up production capacity to 100%, global markets could add about 220 million cu m/d of production, Platts Analytics estimated. Those with most capacity to boost output are Russia, Australia, Malaysia and the US, it said.

Likewise, the buyers most likely to react were in Europe, where there is a large element of coal-to-gas switching and ample storage, according to Platts Analytics. European LNG imports would likely decline by at least 90 million cu m/d from expected Q3 LNG demand.

Such a disruption would also likely discourage some buyers that want secure supply, according to the report. The potential for those buyers to look elsewhere was important because about 13 Bcm/year in Qatari offtake agreements, or roughly 12% of production, is set to expire before December 2022, Platts Analytics said.

-- Claudia Carpenter, claudia.carpenter@spglobal.com

-- Edited by Daniel Lalor, newsdesk@spglobal.com