Asian and European buyers of liquefied natural gas (LNG) are preparing to seek deeper discounts and stronger supply assurances from Qatar and the UAE after disruptions in the Strait of Hormuz exposed the risks of relying on Gulf exports, Reuters reported, citing buyers, traders and industry executives.
The recent U.S.-Iran conflict has upended the Gulf's long-standing reputation as the world's most dependable LNG supply hub. The fighting disrupted oil and gas shipments through the Strait of Hormuz, forcing QatarEnergy to suspend exports, shut liquefaction trains and declare force majeure on some deliveries.
That shift is expected to alter the balance of power in future LNG contract negotiations.
"Anyone entering into new contracts in the Gulf region will also have to take into account potential insurance costs, which are set to increase," Nicola Monti, Chief Executive Officer of Italy's Edison, told Reuters on the sidelines of a business event.
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According to industry sources cited by Reuters, long-term LNG contracts from Qatar and the UAE were typically priced at 12.6%-12.7% of Brent crude before the conflict. Some agreements signed after the war have reportedly been struck closer to 12.3% of Brent, reflecting buyers' attempts to factor in higher geopolitical risk.
Beyond pricing, buyers are also expected to demand greater contractual flexibility. Six Asia-based LNG traders told Reuters that importers will seek guarantees for replacement cargoes if future disruptions again halt exports through Hormuz. One option could involve alternative supply from overseas projects such as Qatar's Golden Pass LNG terminal in the US.
The Gulf producers remain among the world's lowest-cost LNG suppliers. Analysts estimate Qatar can produce LNG for as little as $0.50 per million British thermal units (mmBtu), compared with roughly $3-$5/mmBtu for many competing projects. Its proximity to Asian markets also keeps shipping costs lower than many rivals.
However, buyers believe growing LNG supply from the US, Canada and Mozambique, along with planned capacity expansions by Qatar and the UAE, will strengthen their negotiating position in upcoming contract talks, Reuters reported.
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Qatar and the UAE together account for roughly one-fifth of global LNG export capacity, but all of those shipments pass through the Strait of Hormuz, making them vulnerable to future geopolitical disruptions.
"Going forward (Gulf suppliers) will have to contend with a new risk profile stemming from what happened in the Strait of Hormuz and from the fact that nobody can rule out the possibility of a recurrence in the future," Monti told Reuters.
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