LNG Supply Disruption: Impact on India and Global Markets

How it unfolded

In recent weeks, the geopolitical landscape surrounding energy supplies has shifted dramatically, particularly affecting liquefied natural gas (LNG) imports. Qatar, a key supplier of LNG, has faced significant disruptions due to attacks attributed to Iran. These developments have raised alarms in countries that rely heavily on Qatari LNG, particularly India, which sources approximately 40% of its LNG from this region.

On October 1, 2023, reports emerged detailing the damage inflicted on Qatar’s Ras Laffan LNG hub, which has resulted in a staggering 17% reduction in the country’s LNG capacity. QatarEnergy CEO Saad al-Kaabi noted that repairs to the facility are expected to take between three to five years. This prolonged downtime is likely to have far-reaching consequences not only for Qatar but also for nations dependent on its gas supplies.

The situation escalated further as Iranian attacks rendered the Strait of Hormuz nearly impassable. This strategic waterway is crucial for the transit of energy supplies, with estimates indicating that 40% to 50% of India’s crude imports pass through this route. The implications are severe, as India imports 85% to 90% of its oil, making it particularly vulnerable to disruptions in the Middle East.

As news of the LNG outage spread, European gas prices surged by 35%, reflecting the market’s immediate reaction to the supply constraints. The ripple effects of this disruption are being felt globally, with countries scrambling to secure alternative energy sources. In response, India has begun actively seeking other LNG and LPG suppliers to mitigate the impact of these supply disruptions. Sujata Sharma, an energy analyst, stated, “We are trying to pick up the cargoes from other sources,” highlighting the urgency of the situation.

Moreover, India’s domestic LPG production has seen a notable increase of about 36% as the country attempts to bolster its energy security. However, the risk remains that 90% of India’s LPG imports transit through the Strait of Hormuz, further complicating the supply chain. Randhir Jaiswal, an Indian official, emphasized the need for the protection of civilian energy infrastructure, stating, “India had previously called for the avoidance of targeting civilian infrastructure, including energy infrastructure, across the region.” This underscores the delicate balance of maintaining energy security while navigating geopolitical tensions.

The rising Brent crude prices, which briefly surged over 10% to above $119 per barrel, reflect the broader implications of the attacks on global energy markets. As countries adjust to the new reality of constrained LNG supplies, Indian buyers may face the prospect of procuring higher-priced spot cargoes or reducing consumption if the disruption through Hormuz persists, according to energy expert Sumit Ritolia.

As of now, the situation remains fluid, with ongoing assessments of the damage and the potential for further disruptions. The multi-year supply loss in the LNG market poses significant challenges for India and other nations reliant on Qatari gas. The urgency to diversify energy sources has never been more critical, as countries navigate the complexities of global energy security in the face of escalating geopolitical tensions.