THE EFFECTIVE closure of the Strait of Hormuz and QatarEnergy’s halt of its liquefied natural gas operations have caused LNG spot shipping rates to spike.

Spark Commodities’ Atlantic basin assessment for two-stroke LNG carriers posted its largest-ever single-day gain on Tuesday. Atlantic rates were assessed at $161,750 per day, up 163% or $100,250 per day versus Monday.

Tuesday’s Atlantic basin spot rate was 3.7 times the rate on Friday, before US and Israel attacked Iran; the current rate is the highest since November 2023.

Spark’s Pacific basin assessment for two-stroke LNG carriers came in at $98,750 per day, up 141% versus Monday and 250% versus Friday.

“About 20% of global LNG supply relies on the Strait of Hormuz. That’s almost all exports from Qatar and also the UAE,” said Ashley Sherman, senior LNG analyst for Vortexa, during an online presentation on Tuesday.

“There have not been any LNG vessel transits since early Saturday,” he said, pointing to a growing queue of ballast LNG carriers waiting in the Arabian Sea.

QatarEnergy began shutting down its Ras Laffan and Mesaieed gas facilities after a drone strike, but it would have had to do so anyway due to the strait closure.

According to Sherman, “The effective closure of the Strait of Hormuz means that it would have had to curtail LNG output in the coming days, given there are only a few ballast carriers west of the strait and Qatar’s tank storage capacity, however vast, is only equivalent to around four days of normal operations.

“The core uncertainty here is how long this disruption lasts. If this is a prolonged disruption, then there’s very limited flexibility in the LNG market to absorb a shock of this magnitude,” he continued, noting that 20% of Asia’s LNG imports are sourced from Qatar and UAE, including 30% for China and 60% for India.

“Even if some Asian markets show signs of switching to coal from gas for power generation, or see demand destruction, there will be much greater competition for available spot LNG.

“Asia will have to price above Europe to attract the more flexible LNG cargoes from the US, supporting a wider price spread and inter-basin arbitrage, and also increasing tonne-mile demand for LNG shipping.

“For Europe, the main challenge is not going to be in the immediate days, but a prolonged disruption would undermine its flexibility to refill underground gas storage in Q2 and Q3 — storage that’s going to end this winter at its lowest fill level since 2018,” said Sherman.

When shipping executives have discussed a theoretical Strait of Hormuz closure in the past, they have talked about a two-phase market reaction. In the first phase, spot rates jump. In the second, spot rates will depend on the tonne-mile equation.

The spot-rate math for LNG shipping hinges on whether the increase in miles due to more US LNG going to Asia will be offset by the loss of tonnes, given that sufficient supplies to replace Middle East LNG do not exist.

There is also the issue of LNG carriers on long-term charter to serve Qatar and UAE projects, which could be relet into the spot market.

During an interview in April 2024, Oystein Kalleklev, then the chief executive of Flex LNG, told Lloyd’s List: “On the LNG side, there would be such a big shortfall of cargoes [from a closure of the strait].”

As a result, there would be more ships available for fewer cargoes. “If you have too much of a shortfall of volume, it’s not positive,” he said.