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Navigating the geopolitical landscape

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LNG Industry,

Among the main risks that the LNG market faces, geopolitics could lead to an escalation of events that could greatly threaten the security of global LNG supply. Extreme weather, war, strikes at gas plants, gas infrastructure maintenance, oil price changes, and financial crises, among others, are some of the risks that could result in supply and demand volatility in the LNG market and gas price fluctuations.

All these issues could jeopardise the dynamics of the LNG market due to its nature. LNG is a global commodity transited in different directions across oceans and bought by traders and/or consumers of the fuel. LNG is meant to offer flexibility and increase security of energy supply. But some importing nations and regions have become increasingly dependent on a fuel that is constantly affected by factors they have little or no control over.

Global LNG trade has grown steadily in recent years, jumping from 165 million tpy in 2008 to 412 million tpy in 2023. While LNG trade volumes doubled in 10 years from 2008 to 2018, the increase has since been just 28%, raising questions about whether peak LNG is on the horizon.

Maritime chokepoints

Geopolitical tensions among nations could disrupt global LNG trade by blocking some of the main maritime chokepoints, creating an unbalanced LNG supply and demand scenario. Global energy security could be at risk depending on the extent and duration of such a blockage, on the volumes of LNG and oil that are transported via those passages and if other alternative routes could be used instead.

As explained by Chatham House, the concept of a chokepoint derives from the military context, relating to terrain. It implies a narrow passageway that cannot easily be bypassed and that offers a ready opportunity to prevent the movement of military forces. Relating to oil and gas trades, the key maritime chokepoints are narrow channels along widely used global sea routes, some so narrow that restrictions are placed on the size of the vessel that can navigate through them. The main ones are the Strait of Hormuz, the Strait of Malacca, the Bab al-Mandab, the Suez Canal, the Turkish Straits, the Danish Straits, the Cape of Good Hope, and the Panama Canal.

The Strait of Hormuz is the world’s most important oil and LNG chokepoint because of the volumes that flow through it and the lack of alternative routes that can be used if it becomes blocked. About one-fifth of traded oil passes through it, as well as LNG exported from Qatar and the UAE. It is 33 km wide at its narrowest point and is located between Iran and Oman, linking the Persian Gulf with the Gulf of Oman to the south and the Arabian Sea beyond.

In 2023, 20% of all traded LNG passed through the Strait of Hormuz, 8% via the Suez Canal, 4% around the Cape of Good Hope and 3% via the Panama Canal, which is experiencing a prolonged drought that began in early 2023.

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LNG export news LNG import news Natural gas news LNG news in Europe