Liquefied natural gas (LNG) traffic through the vital Strait of Hormuz has seen a dramatic reduction, with laden transits falling sharply in recent weeks. S&P Global Energy's latest analysis indicates a significant drop, largely attributed to an attack on an LNG vessel and escalating tensions between the US and Iran.
According to vessel tracking data, the 10-day moving average of laden LNG transits through the strait plummeted from approximately 0.8 cargoes per day in late June to just 0.2 cargoes per day by July 15. This reversal comes despite a June 17 agreement aimed at facilitating commercial transit, highlighting the fragility of shipping routes amid geopolitical instability.
Attack on QatarEnergy Vessel Sparks Caution
The downturn in Strait of Hormuz LNG traffic follows a direct strike on QatarEnergy LNG’s Al Rekayyat on July 7, marking the first such attack on an LNG vessel since the conflict began. This incident has significantly heightened caution among shipowners, with only one LNG cargo reported to have exited the Persian Gulf in the week leading up to July 17.
“LNG traffic through the Strait of Hormuz has fallen back to levels last seen in early June, well before the June agreement created a temporary window for renewed movement. Our outlook increasingly points to shipping constraints, rather than the ramp-up of liquefaction capacity, as the main factor limiting exports,” stated Mehrun Etebari, Senior Principal Analyst at S&P Global Energy.
Production Continues, Inventory Builds
Despite the severe disruption to outbound shipping, LNG production and vessel loadings at major facilities like QatarEnergy LNG and the UAE’s ADNOC LNG have maintained a robust pace. This disparity has led to a growing inventory of LNG aboard tankers waiting within the Persian Gulf.
Estimates suggest that seven laden Qatari LNG carriers alone held approximately 0.57 million metric tons of LNG by mid-July. S&P Global further calculates that nearly 1.9 million metric tons of LNG tanker capacity is currently positioned inside the Persian Gulf, equivalent to about eight days of typical pre-conflict peak exports from these projects. Should the effective blockage ease, these vessels could enable a rapid increase in exports, releasing already produced and loaded LNG onto the global market.
India Reroutes, Iran Issues Warnings
The heightened risks in the Strait of Hormuz have prompted countries like India to reroute crude oil and LNG imports via the UAE and Oman in an effort to bypass the volatile region. Meanwhile, Iran has reportedly warned that it could target alternative export routes, including the Fujairah pipeline and Saudi Arabia's East-West pipeline, if its own oil exports remain blocked.
Analysts anticipate that intermittent disruptions are likely to persist as long as security risks remain elevated. However, a sustained reopening of transit routes could unlock substantial export volumes currently awaiting passage within the Gulf, significantly improving the outlook for global LNG supply.