The ongoing global liquefied natural gas (LNG) supply crisis, exacerbated by the conflict in the Middle East, has pushed Northeast Asia's LNG futures prices above $30 per MMBtu for the first time in nearly four years. Despite predictions of a warmer winter, the seasonal demand for heating and supply disruptions from the Middle East are expected to increase South Korea's LNG procurement costs.
According to relevant authorities, the Northeast Asia LNG price indicator, JKM, recorded a futures price of $30.010 per MMBtu for December delivery on October 19. This marks the first time the JKM futures price has exceeded $30 since December 22, 2022, when it reached $31.635 amid the Russia-Ukraine war. Although the JKM futures price fell to $29.550 on October 20, a 1.53% decrease from the previous trading day, it remains 13.7% higher compared to $25.990 on September 21.
The primary driver of rising international LNG prices is the supply disruption from the Middle East. Since the outbreak of the conflict, Qatar, a major LNG exporter, has significantly reduced its production and exports, constraining global supply. Additionally, competition for LNG procurement is intensifying in Europe and Asia as winter heating demand approaches.
Currently, European natural gas reserves are below average levels. According to the European Gas Infrastructure Association (GIE), as of October 19, the European Union's natural gas storage rate stands at approximately 74.6%, which is 14.6 percentage points lower than the five-year average of 89.2%.
If Europe increases its LNG imports to meet winter heating demand, competition for spot supplies with Asian countries could intensify. In a situation where global supply is already constrained, even a temporary cold snap could lead to increased volatility in international prices.
South Korea is also facing challenges regarding winter heating demand. The Korea Meteorological Administration predicts a 50% chance of above-average temperatures this winter. However, even with higher average temperatures, cold snaps can occur, and seasonal heating demand is likely to rise, making it difficult to significantly reduce LNG consumption.
Qatar's production capacity has been damaged by the conflict, and instability in the Strait of Hormuz has prolonged the global LNG supply crisis. According to Reuters, shipping data firm Kpler estimated Qatar's LNG exports at around 1.6 million tons last month, which is less than a quarter of the pre-war monthly average. This month, exports are expected to drop to about 600,000 tons.
Resolving these supply disruptions in the short term appears challenging. In March, a missile attack from Iran damaged production facilities at Qatar's key LNG production hub, Ras Laffan, affecting approximately 17% of its total LNG export capacity. QatarEnergy has projected that it could take three to five years to restore some production facilities.
Maritime transport through the Strait of Hormuz has not yet normalized. Most of Qatar's LNG is exported via this route. Even if some production facilities are restored, ongoing maritime transport instability will inevitably limit actual supply increases.
The supply disruptions from Qatar are directly impacting South Korea. According to the Korea Gas Corporation, the long-term LNG import contract with QatarEnergy amounts to approximately 6 million tons annually. However, since March, LNG imports under this contract have been suspended due to force majeure declared by Qatar, citing the Middle East conflict and issues with the Strait of Hormuz.
Force majeure is a contractual clause that exempts parties from liability when obligations cannot be fulfilled due to uncontrollable circumstances such as war or natural disasters. The gas corporation explained that the supply during the recognized force majeure period is exempt, and the contract duration will not be extended for the period of supply interruption.
A representative from the gas corporation stated, "We are securing alternative supplies from the U.S. and Australia to manage winter supply stably." While the immediate risk of LNG supply shortages in South Korea is low, the rising international spot prices could increase the costs of alternative procurement, which remains a concern.
* This article has been translated by AI.
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