During the first five days of the war in Iran, the price of liquefied natural gas has surged.
Not only has the Strait of Hormuz, a chokepoint for oil and gas shipments, effectively been closed, but the world’s largest liquefied natural gas export hub, in Qatar, has also been closed following a drone attack by Iran.
The ripple effect on energy markets shows just how important Qatar and its exports of LNG are to the global energy supply chain.
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Consider the countries that depend on LNG from Qatar. They include some of the United States’ most important trading partners.
The UK imports 50% to 60% of its natural gas, with much of it coming from Qatar, according to research by RSM UK Chief Economist Thomas Pugh. In Italy, 40% to 45% of its LNG comes from Qatar.
The United States, by contrast, is a large exporter of LNG. But the U.S. does not have the depth to meet global demand should the Strait of Hormuz face a lengthy shutdown of energy traffic.
LNG from Qatar
Qatar accounts for 19% of the world’s LNG’s exports, with the majority of that LNG going to Asian countries.
China receives 38% of the LNG shipped through the Strait of Hormuz, followed by India at 15%. More than a third, or 36%, of the LNG shipped through the Strait goes to other Asian nations.
Using LNG to generate electricity
The heating season in the northern hemisphere is winding down, but many countries rely on natural gas to generate electricity. Singapore, for example, generates 94% of its electricity using natural gas.
The implication is that the increase in LNG prices will raise inflation in most countries that rely on natural gas.
In North America, the U.S. generates 42% of its electricity using natural gas. Mexico generates 60% of its electricity using natural gas, while Canada, with its vast resources of hydro power, generates only 15% of its electricity with natural gas.
The takeaway
The evolution of global energy supplies has changed over the past few decades. While production of oil has increased around the globe, the Middle East remains a critical chokepoint for energy.
The combined impact of sanctions on Russian LNG exports and the risk of a sustained closure of the Strait of Hormuz has cast light on the importance of Qatar to the global energy supply chain.
