Asia scrambles for oil and gas alternatives as Iran war drags on

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SINGAPORE - Oil and gas traders have spent days scrambling for alternative sources of supply to Asia outside of the Middle East, on concerns a

prolonged conflict could choke off flows

from the energy-rich region.

Some liquefied natural gas traders spent all night on March 2 speaking to contacts about available supply after Iranian attacks closed the world’s biggest export plant in Qatar, said people familiar with the matter.

Importers in China, India and Japan have all inquired about other sources of oil and LNG, they said.

The escalating conflict in the Middle East, sparked by the US and Israeli strikes on Iran over the weekend, has rattled energy markets and

driven up prices for crude and gas

. Shipping through the Strait of Hormuz has all but ground to a halt, while attacks also forced Saudi Arabia’s largest oil refinery to close.

Some buyers of LNG, including Taiwan, requested suppliers deliver cargoes in March, a month early, the people said, asking not to be identified because they are not authorised to speak to the media.

The island, along with South Korea, is now seeking to secure fuel from other regions.

Asian nations, including China, have stockpiles of crude and LNG that will help to buffer any short-term disruptions, but a sustained conflict threatens to quickly drain those supplies.

Alternatives outside of the Middle East will likely be more expensive, with bloated freight rates adding to spiralling costs for importers.

For LNG, alternatives include a small array of product flowing from the US – the world’s biggest producer – to Europe, which can easily be re-routed towards Asia mid-journey.

There is also supply from Australia, which recently sent a rare shipment all the way to Canada because of subdued Asian demand.

For buyers of oil, there are stockpiles of Middle Eastern crude in locations such as Japan’s Kiire and Okinawa, which regional refiners can draw from.

Kiire has capacity to store more than 46 million barrels, while Okinawa can hold more than 8 million barrels. Saudi Aramco leases space at both storage sites.

Nearby countries such as Malaysia, Vietnam and Australia also produce crude, although significantly less than producers in the Persian Gulf. That leaves buyers with options much further afield, including the US and Africa.

The

effective closure of the Strait of Hormuz

– the narrow waterway separating Iran and the Arabian Peninsula – has halted crude and LNG shipments from the Persian Gulf.

A senior adviser to the commander of Iran’s Islamic Revolutionary Guard Corps warned that forces “will set fire to any ship attempting to pass through” the strait. He made the remarks on state television.

Traders have been scrambling since the US and Israel started attacks on Iran on Feb 28.

Many were kept up late that evening with their phones buzzing non-stop, making calls to inquire about the status of booked shipments, the people said.

Charterers and oil traders negotiating cargoes had to abruptly scrap deals due to the uncertainty around the unfolding conflict, they added.

China, the world’s biggest importer of crude and gas, gets about 30 per cent of its LNG shipments from the Middle East. The region is also the key energy supplier for countries such as India, Japan and South Korea.

India’s Petronet LNG and Gail India, which have contracts to buy the fuel from Qatar, are considering releasing new purchase tenders to cover potential lost volumes.

At least five LNG tankers, laden with cargoes from Qatar’s now-shut Ras Laffan facility, were seen inside the Persian Gulf, according to ship-tracking data compiled by Bloomberg. It remains to be seen when they will transit out.

Trading houses with take-or-pay contracts for LNG, particularly those tied to Qatar, are looking to source cargoes from elsewhere to cover their deliveries to customers, the traders said.

Along with Taiwan, utilities and other buyers in Japan have asked for April shipments to be brought forward, they added.

Taiwan, a global chipmaking hub, has enough LNG to meet its needs through the end of March after emergency coordination and adjustments, Premier Cho Jung-tai told lawmakers on March 3.

The island may approach Japan and South Korea for supplies, Economic Minister Kung Ming-hsin said.

South Korea has sufficient oil reserves and LNG inventories above its mandatory stockpiling requirement. However, the government is working towards securing gas supplies from other regions following the production halt in Qatar, a trade official said, without specifying which suppliers were under consideration. BLOOMBERG