The global liquefied natural gas (LNG) market is grappling with an extended disruption of supply through the Strait of Hormuz, a critical chokepoint that saw approximately one-fifth of global LNG trade in 2024. This disruption, now in its seventh month due to the US-Iran war, has been severely compounded by missile strikes that damaged two of Qatar's 14 export trains, taking about 17% of its LNG capacity offline. QatarEnergy estimates repairs will take three to five years, meaning a reopening of Hormuz will not immediately restore pre-war supply levels. This situation has led to significant cost increases, with Asian buyers facing an estimated $7 billion surge in costs as Qatari shipments, a major source for the region, have largely ceased. Asian LNG spot prices have surged to around $30 per million British thermal units, a 150% increase year-to-date, compared to $3 billion a year earlier for spot cargoes.
In response to this volatility and the extended shortfall, LNG buyers, particularly in Asia, are actively seeking to diversify their supply sources and are accelerating discussions to secure more fuel from the United States. Companies like Japan's Jera Co., one of the world's largest LNG buyers, are emphasizing the need for long-term contracts to reduce exposure to the volatile spot market. Jera, which previously diversified its supply to rely on the Middle East for only about 5% of its LNG, highlights the vulnerability of nations that relied too heavily on Qatar for 50% to 60% of their supply. Inpex Corp., another Japanese energy producer, is considering investments in US LNG export projects, reflecting a belief that the Strait of Hormuz flows will not return to previous levels.
US LNG suppliers are becoming increasingly attractive due to their competitive long-term contract prices, often linked to the Henry Hub benchmark and supported by vast shale reserves. Such long-term contracts for US shipments to Asia are reportedly being delivered at around $8 per million British thermal units. While some US contract prices have recently risen due to supply chain bottlenecks and market tightness, the long-term stability and lower cost compared to current spot prices make them a preferred option for buyers looking to hedge against future disruptions. QatarEnergy itself is seeking multi-year US LNG contracts through 2031, indicating an expectation that its damaged capacity will remain a constraint well beyond any potential reopening of Hormuz.
