Gulf energy companies are racing to secure stakes in US liquefied natural gas projects, using a prewar diversification strategy as a hedge against supply disruptions after the closure of the Strait of Hormuz squeezed nearly a fifth of global LNG trade.
Abu Dhabi's Mubadala Energy and XRG, as well as QatarEnergy, have been moving ahead with major investments in LNG projects across the US recently.
Mubadala Energy said this month it was pressing ahead with the construction of a $13 billion LNG project in Louisiana, targeting 9.5 million tonnes per annum by 2030. In Texas, QatarEnergy began LNG exports from its Golden Pass project in March, marking a significant moment in its largest US investment.
Also in Texas, XRG expanded its stake in the Rio Grande project by acquiring an additional 7.6 per cent equity stake in Trains 4 and 5 in the Port of Brownsville.
Saudi Arabia also has a long-term agreement with Houston-based Caturus Energy, and has secured offtake from both Rio Grande LNG and Commonwealth LNG, while the Abu Dhabi Investment Authority (Adia) holds positions in Sempra Infrastructure and Cheniere Energy.
Adia holds positions in Sempra Infrastructure and Cheniere Energy, and this week the Arab Energy Fund took a $120 million stake in MidOcean Energy.
"US LNG has become the most viable alternative for balancing short-term disruptions caused by the blockade of the Strait of Hormuz," said Francesco Sassi, assistant professor of energy geopolitics at the University of Oslo.
"Gulf producers are increasingly hedging their positions through joint investments in US LNG."
Prewar strategy pays off
The increasing reliance on US natural gas by Gulf majors underscores a years-long diversification strategy into North American LNG.
The investment trends began before the war, according to Ira Joseph, a fellow at the Centre on Global Energy Policy. “The war did not trigger or cause a sudden investment strategy in the US," he said.
"This is just a continuation of something that was already happening." What the war has done is validate the urgency of investing in alternative sources of supply for Gulf producers. "It's too risky to have your supplier be able to supply your buyers from a single source," Mr Joseph said.
These long-term investments not only underscore the region's strategic reliance towards LNG; what earlier looked like diversification of portfolio is now being positioned as contingency planning with the closure of Hormuz.
Regional LNG supply constrained
LNG can only move by ship, and the product is one of the many commodities whose flow was disrupted due to the regional war. The closure of Hormuz has affected more than 10 billion cubic feet per day – or roughly 20 per cent – of global LNG supplies.
An analysis from the International Energy Agency showed that LNG supplies from Qatar and the UAE, which account for about one-fifth of global supply, have reduced by over 300 million cubic metres per day since March 1. Most of this can be attributed to an Iranian strike at the Ras Laffan LNG export facility, which accounts for 17 per cent of Qatar's LNG capacity.
QatarEnergy has warned it could take up to five years to repair damage to the Ras Laffan. The state-run company has since extended force majeure on all shipments through mid-June.
No loaded LNG vessels were known to have crossed the waterway between March 1 and April 24, the US Energy Information Administration said in an analysis, citing Kpler data.
Following shut-ins in the Middle East, projects once considered too marginal to attract serious capital, are drawing new interest.
"Projects that had seemed marginal before the war are now seeming more mainstream," Mr Joseph said. "Capital will still flow into the Middle East, but I don't think it has the primacy that it did before," he added.
Can US LNG fill the gap?
With LNG exports disrupted in the Middle East, focus is turning towards end-buyers, particularly in Asia, and on whether the US can fill this supply gap.
Most LNG from Qatar and the UAE goes to Asia, with about 90 per cent of total volumes exported via the Strait of Hormuz destined for the market in 2025 and accounting for more than a quarter of its total LNG imports, according to the IEA. By comparison, a little more than 10 per cent went to Europe.
With this supply lost, Asian buyers, who import more than 80 per cent of Qatari gas, are now competing for cargoes on the global market.
The price impact has been immediate. The front-month JKM futures - the Japan Korea Marker, S&P Global Platts's daily benchmark for spot LNG deliveries into Northeast Asia, rose 51 per cent in the two months following the Hormuz closure to $16.02/Million British Thermal Units for the week ending April 24, according to the EIA. European TTF, the Dutch hub that is the continent's primary gas benchmark, rose 35 per cent over the same period, while US Henry Hub, buffered by ample domestic supply, fell 9 per cent. This makes American LNG increasingly attractive to price-sensitive buyers.
The scramble for gas in the spot market is prompting a longer-term reassessment by buyers. US LNG, with flexible destination clauses and growing capacity, is an increasingly attractive alternative.
If the disruption continues, some buyers in Japan, South Korea and China may lock in long-term American supply contracts that will be difficult to unwind even after Gulf facilities recover. It would also put Gulf producers in direct competition with the infrastructure they are currently funding.
The US is on track to double its export capacity by 2030. Its exports have jumped 28 per cent year-on-year to a record 32.15 million tonnes in the January-April period, according to Kpler data.
"This strategic shift is occurring even though the White House is an active participant in the conflict and has an obvious interest in promoting American 'Energy Dominance'," Mr Sassi said.
However, Mr Joseph said that despite the potential for US LNG dominance, there is not enough supply to fill the gap lost to disruptions in the Gulf. The Strait of Hormuz handles about 20 per cent of global LNG cargoes, or 86 million tonnes per annum.
“We have new trains starting for Corpus Christi, new trains starting in Golden Pass, but the volume is just simply not enough to make up for what's been lost, mostly from Qatar, but also from Abu Dhabi,” he said.
