By Mark Jaffe, EUCI energy writer
The war in Iran, while upending world energy markets, may have some winners in U.S. liquefied gas (LNG) exports and renewable energy, according to an analysis by industry risk consultant DNV.
Still, the war is exacting a heavy and lasting toll.
“Without knowing the duration and possible escalation of the conflict, it is clear that restoring production will take time; restoring trust even longer,” DNV said. “It is likely that the world will therefore see elevated oil and gas prices for a long time.”
Asia has been disproportionately impacted, as it gets 80% of its oil and gas through the now closed Strait of Hormuz.
Twenty percent of the world’s oil and gas pass through the strait, and Iran’s closure has created the biggest oil and gas supply shock in the history of the industry.
The short-term consequences hits countries with low oil and gas stocks and a weak ability to pay high spot prices, including Pakistan, Bangladesh, and Sri Lanka, DNV said.
Still, all energy importing countries have been adversely affected, spurring efforts to reduce oil dependency.
“The rule-of-thumb that what is bad for fossils is good for renewables applies,” DNV said. “And the Middle East conflict is definitely bad for oil and gas. It is clearly strengthening energy security as a primary global concern because it has once again exposed, dramatically, the vulnerability of many countries to oil and gas dependency.”
While the transition to alternative energy has gained “strategic urgency,” it comes in the face of higher interest rates that will increase the cost of projects. The diversification will also take time. “Energy security concerns will ultimately strengthen the pull toward renewables and nuclear,” DNV said.
Over the last three weeks, DNV noted that Chinese battery manufacturers have done better on stock exchanges than oil companies. “That is a signal of what long-term money is betting on,” the analysis said.
While Middle Eastern countries will take a severe economic hit through direct damage and fading confidence in the Gulf’s role in economic and tourist activity, oil and gas exporting countries outside the Gulf will get a boost.
Qatar, tied with Australia as the second largest exporter of LNG behind the U.S., lost 17% of its production capacity from Iranian attacks. It will take five years to repair the damage, according to QatarEnergy.
This will create opportunities for U.S. exports in both Europe and Asia as the country’s export capacity is projected to more than double to almost 30 billion cubic feet a day by 2029, according to the U.S. Energy Information Administration.
In the short run, however, U.S. exports will not make up for the 20% of world LNG supply that was coming through the Strait of Hormuz.
“The U.S. was already planning to significantly boost LNG export volumes, but not at the amounts and timing now required,” the analysis said.
DNV also warned that high export spot prices may place pressure on the domestic price of natural gas. “High domestic oil and gas prices are deeply unpopular among voters and pose a severe test ahead of the upcoming mid-term elections in the U.S.,” the report said.
Adding to the global uncertainly is the permanent risk Iran’s control over the Strait of Hormuz creates for the Gulf.
“If the U.S. does withdraw, there is also no guarantee that Iran will release its chokehold on the strait if its various demands remain unmet,” DNV said. “With all these factors taken into account, it is likely that the world will see elevated oil and gas prices for a long time.”
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