By Mark Jaffe, EUCI energy writer
The U.S. and Israeli attacks on Iran have roiled energy markets and may lead to a reordering of energy priorities, but at least in the short run will not have the same impacts as previous geopolitical disruptions, according to Rystad Energy.
For example, after the Russian invasion of Ukraine, natural gas prices soared when Europe sought to replace Russian gas. The European benchmark price has recently jumped 40%, but the continent’s supplies are now more diversified.
“Rystad Energy expects the current supply shock to follow a different playbook and prove less consequential for global gas and liquefied natural gas (LNG) markets than the earlier jolt. Hence, we do not expect prices to hit the highs seen in 2022,” the Rystad Energy analysis said.
Spurred by higher prices, facilities in West Africa and the U.S. could likely increase LNG output somewhat, but it would be hard to replace Qatar, the third largest LNG exporter in 2025, behind the U.S. and Australia.
QatarEnergy halted LNG production on March 2 following a drone strike on its gas facilities in Ras Laffan, which has a capacity of 77 million tons a year (MTY). The plan is to expand the facility’s capacity by 142 MTY.
If Qatar’s facilities sustain further damage, or should Iran block commercial shipping through the Strait of Hormuz by means of force, much higher volumes could be removed from the global LNG balance in 2026.
In this worst-case scenario, as much as 18 million tons of Russian LNG could be brought back into the market. “The reintroduction of Russian volumes, however, hinges on lifting all sanctions and Europe buying most Russian LNG to support shipping logistic,” Rystad Energy said.
“This course of action would undermine long-term U.S. LNG expansion by exacerbating oversupply concerns once Qatari volumes come back or even pave the way for the return of Russian pipeline supply,” the analysis said. “Since both are diametrically opposed to U.S. interest, it must be considered extremely unlikely.”
The war will reduce global LNG supplies in 2026, but that comes at a time with loosening gas balances and expanding global trade.
In 2022, it was Europe that suffered the greatest impact from the loss of natural gas supplies, and those countries embarked on a “whatever it takes” approach to gaining supplies, leading to spiraling prices.
This time, South Asian countries, such as Bangladesh and Pakistan, are bearing the brunt of the supply loss. Rather than bidding up the cost of LNG, Rystad Energy said it expects the countries to respond with a combination of curtailment and fuel switching.
“Even so, fuel-switching will likely be kneecapped by price increases in crude oil and oil products, placing a higher emphasis on thermal coal,” the analysis said.
The economies of developed countries are less dependent on oil than they were during the oil crisis sparked by the Iranian revolution in 1979, and there are more global supplies. The U.S., for example, is now the world’s largest oil producer – although its ability to increase production is limited.
“It is true that the U.S. shale industry does not have any meaningful growth momentum right now on the oil side,” Rystad Energy said. At an oil price of $100 a barrel, however, “there would be room for increases in activity of 30-40% in the next year.”
In addition, international oil companies were already planning to search for global shale resources in the next four years, although “a high concentration” of opportunities are in the Middle East.
The immediate concern is the effective closure of the Strait of Hormuz, on the southern edge of Iran, “a globally critical oil chokepoint,” with approximately 14 million barrels per day (bpd) of crude passing through. About 88% is destined for Asia.
China accounts for 4 million bpd of demand, with India using another 2 million bpd.
“If the closure persists the search for replacement barrels will be immediate and competitive,” Rystad Energy warns and could lead to sustained $100-a-barrel prices.
“A prolonged conflict in the Middle East or the potential for lasting geopolitical instability that lifts benchmark oil prices sustainably above $100 could dramatically reorder the upstream strategies of global oil companies,” the analysis said.
Companies could shift capital away from Middle East assets at the same time they are gaining increase cash flow from the higher prices, accelerating activity elsewhere.
At a $100 price, faster development could take place on Canadian oil sands and the Vaca Muerta Shale in Argentina. The higher price could boost the return of Venezuelan oil, as well as in fields in Suriname, Mauritania, Senegal, Gambia, Guinea-Bissau, Tanzania, Uganda, Kenya, Argentina offshore, Central Asia, and the Caspian region.
“It is the duration of the ongoing conflict and the longevity of its residual implications for the market and producer sentiment, as well as the level of the global demand destruction if we get to sustained $100 oil,” the analysis said.
“Even when the current conflict ends, questions will remain about the willingness of supermajors and other international producers to prioritize the Middle East in their upstream capital allocation frameworks compared to the pre-conflict expectations,” Rystad said.
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