By Anne-Sophie Corbeau
Research Scholar, Centre on Global Energy Policy (CGEP)
Columbia University
Global energy markets continue to react to the ongoing Middle East conflict, with LNG and natural gas prices as well as oil exhibiting volatility amid supply disruption. In an exclusive interview, Anne-Sophie Corbeau, Global Research Scholar at the Centre on Global Energy Policy (CGEP) at Columbia University, discusses the industry’s future and its resilience to the ongoing situation..
What is your outlook for global gas and LNG markets with no sign of hostilities ceasing?
We have seen prices increasing but not at the levels we were experiencing in 2022, which was most of the time above €100 per megawatt hour.
We are starting to see some cargoes being redirected, in particular, from Europe to Asia. Right now we have the equivalent of about 110 billion cubic metres of LNG that flows through the Strait of Hormuz which has been impacted. This is mostly going from Qatar, and most usually is going to Asia; countries such as China, India, Pakistan, Bangladesh, Japan, Korea, and Taiwan. There is a little bit more than 10 million cubic metres going to Europe, but Asia is the most impacted region, which is probably why we are seeing some diversion of cargoes.
We have seen different statements coming from the US administration, whereby maybe the navy would be able to escort ships, or not. Ship owners and crews are going to wait to see whether this is doable. It’s not that easy because the Strait of Hormuz is very narrow, and it’s easy to target ships. A Russian LNG cargo ship was hit by a drone in the Mediterranean. It’s something separate, but now we know what it means in practice and, of course, nobody wants that.
How do you view the impact on Asia and the knock on effect for Europe and the wider world if Hormuz closure continues for a prolonged period?
There are going to be different responses depending on how dependent countries are.
Looking at the volumes in absolute terms, the country most impacted is China. However, I am, in general, less worried about China than other countries because China is a relatively big market. This is about 30bcm out of 443bcm, so it’s not that much. In China, the growth of gas demand is determined by government policy, gas prices and economic activity. While gas prices are high, government policy may actually say, ‘we don’t really want to see too much coal-to-gas switching this year’, so that should dampen gas demand growth. There is some potential to switch from gas to coal, especially in the power generation sector.
It still remains to be seen how high energy prices, both oil and gas, are actually going to impact global economic growth.
In countries such as India, Thailand, Pakistan, Bangladesh, affordability is going to be a big problem as they are all quite dependent on these LNG cargoes. In particular, Pakistan. However, Pakistan was on an interesting trajectory, because they were hit by the crisis in 2022 and wanted to reduce dependency on LNG.
But for a country like India, a very big importer, about 60% of LNG is coming from the region.
Countries such as Japan, Korea and Taiwan will first of all probably try to do something on the demand side, especially in power generation…some switching to coal-fired generation.
The most impacted is Taiwan. About a third of their LNG was coming from the region. There is probably a bit of a way to adapt in Japan, which was much less dependent on Middle Eastern LNG.
All that means is that Europe, which has been really counting on a lot of flexible LNG, is probably in a bad position.
Probably also the reason we are not seeing gas prices moving to very high levels right now is that cargoes loaded about a month ago in Qatar are still arriving in Europe and Asia. But eventually we are going to start seeing Europe missing something like 1bcm per month. And then cargoes going somewhere else.
The problem is, we are moving into the injection period, and it’s very important we refill storage because in Europe we have relatively high demand during winter. That injection is potentially at risk if Hormuz is closed for an extended period and, on top of that, infrastructure is damaged.
Let me add, however, that we have been blessed by relatively mild weather over the first two weeks in March in Europe, so overall the drop in storage-filling levels has not been too bad.
Markets were in a tight situation even before the conflict started, with talk about whether there would be an LNG glut. Now, how do you see that working out?
We were moving towards a rebalancing of the global gas market. Prices were still above what we had in the pre-crisis period, which was 2015-2019; €20 per megawatt hour in Europe was the normal we wanted to go back to. Prices were at €30 just before the crisis started. So we were still in a relatively tight market, especially because winter had been normal in Europe and we had also very cold winter in other parts of the world, such as the US and Northeast Asia.
However, based on all the LNG expected to come in 2026, and even more in 2027, the view was that by 2027, maybe starting 2026, we would start seeing a drop in prices.
Now everything is up in the air. Growth in energy supply in 2026 is going to be much lower than everybody expects. If the crisis extends, there might be a point at which there is no growth at all.
So it’s a big question right now. Is LNG over-supply dead or delayed? That depends very much on what is going to happen in Qatar.
How do you see the industry responding to challenges posed by the conflict over the long term?
It really depends on how this conflict ends. For the moment, the players in the Middle East – which have been expanding beyond their horizons – really depend on the end of the conflict. We can try to sketch out many scenarios, but at the end it really depends on whether we see a bright future in terms of the Strait of Hormuz or not, and the duration of this conflict.
Source: Adipec