The spike in LNG prices triggered by the war in Iran is prompting concerns from export project developers about the possibility of future demand destruction if prospective buyers lose confidence in the fuel.
Iranian attacks on ships near the strait of Hormuz and missile strikes on Qatar's 77mn t/yr Ras Laffan LNG export terminal have driven prices up sharply. LNG delivered to northwest Europe in May topped $20/mmBtu this week, more than twice the price from before the war. That could mean a windfall for many LNG producers, but industry officials say the return of price volatility makes it harder to pitch governments on the long-term deals needed for such capital-intensive projects.
"The volatility in price is probably the biggest risk for industry," said Ben Dell, managing partner at US private equity firm Kimmeridge on Friday at an event held by the US Trade and Development Agency.
LNG prices have yet to hit the record highs seen in 2022 after Russia's invasion of Ukraine, but countries are already taking dramatic steps to reduce energy use in response. The IEA on Friday released recommendations to reduce demand-side energy use, including lower vehicle speed limits, working from home and avoiding jet travel.
"If we end up more weeks or months in — we are already cutting bone — we will be cutting really deep bone," US LNG developer Excelerate Energy general counsel Alisa Newman Hood said. "We need LNG to be dependable in order for [governments] to depend on it and not end up in demand destruction."
The attacks on the Ras Laffan LNG terminal could increase the value of LNG assets outside of the Middle East that "now appear to have lower operating risk, especially if an ultimate ceasefire agreement appears tenuous", investment bank TD Cowen said in a note to clients on Friday. US gas industry officials believe at least three large-scale LNG projects will soon reach FID but say more capacity may be needed.
"I really think we ought to start today with more of a wartime mindset," LNG Allies executive director Fred Hutchison said.
President Donald Trump's administration has championed the growth of US LNG, including by tapping federal financing and insurance authorities. The US Export-Import Bank (EXIM) last week said the proposed $14bn Delfin floating LNG project off Louisiana was a "potential" transaction it was reviewing.The US credit export agency has already provided loans and insurance to support US exports for LNG projects in Mozambique and Turkey, but it has yet to extend credit or insurance directly to US LNG export terminals.
"We're looking at some potential LNG projects, for example, that will be exporting more cargoes and more molecules abroad," EXIM Bank vice president of global business development Ben Todd said at the event. "One area where EXIM Bank has seen absolutely increased demand is supporting the physical cargoes themselves."
