How Hormuz disruption is reshaping the Atlantic LNG market

“Cross-basin spreads remain anchored in the US diversion stack.”

The closure of the Strait of Hormuz has driven a rapid repricing of gas and oil markets. But the disruption is set against an unusual backdrop – a record wave of more than 200 mtpa of new LNG supply growth as show in Chart 1. The result is a market where commercial strategies are evolving fast to adapt for another substantial supply shock.

We recently unpacked what this means for Atlantic LNG value in a joint webinar with Spark Commodities. Watch the full recording here. Below is a overview of some of the themes we cover.

Freight and arbs are repricing. Atlantic spot freight is sitting at record highs for this time of year. US arbs point cargoes towards Asia in Q2, before pivoting back to Europe in Q3 – a reminder of how quickly inter-basin economics can flip.

US diversions remain the key source of inter-basin flex. Growth in USGC export capacity is cementing the US as the dominant source of supply flexibility, with cross-basin spreads set to remain anchored in the US diversion stack.

In the webinar we discuss value dynamics of a stochastic valuation of a representative Henry Hub-indexed, US FOB offtake position, using our LNG Bridge portfolio valuation model.

Charts 2 shows the value distribution of the cargo diversion option. It illustrates significant ongoing diversion flex value from optimising between Europe (DES NWE) and Asia (JKM) – but also material margin uncertainty, with the option sitting intrinsically close to ‘at-the-money’.

European regas value is set to improve. The crisis-driven slump in utilisation and spreads looks temporary. As European LNG demand volatility grows, the rising extrinsic value of regas slots looks set to lift the merchant value of European regasification capacity.

Watch the webinar recording here for the full analysis and discussion with the Spark Commodities team.