The ongoing military conflict involving the United States and Israel against Iran has severely affected the liquefied natural gas (LNG) sector in the Gulf region, causing unprecedented disruptions in the global energy market. The Strait of Hormuz, a crucial maritime route, is responsible for approximately 20 percent of the world’s LNG and 27 percent of its maritime oil trade. As a result of the hostilities, shipping operations through this vital passage have come to a near halt, prompting oil-rich nations like Saudi Arabia to redirect oil to alternative channels and leading Qatar to suspend its LNG production activities.

Understanding LNG and Its Processing

LNG is derived from natural gas, which forms over millions of years from organic materials buried beneath the Earth’s surface. To create LNG, natural gas is cooled to temperatures around -162 degrees Celsius through a process known as cryogenic processing, reducing its volume by a factor of 600. In this liquid state, LNG is colourless, odourless, and non-flammable, enabling safe transportation across extensive distances. Prior to liquefaction, the gas undergoes purification to eliminate impurities such as carbon dioxide, hydrogen sulphide, water, and mercury, resulting in a product that is predominantly composed of methane, along with trace amounts of other hydrocarbons.

Storage and Distribution of LNG

LNG is stored in large insulated tanks without the need for high-pressure systems and is subsequently loaded onto double-hulled carriers for shipping to various terminals worldwide. Upon arrival, the LNG undergoes regasification, involving heating with seawater or a warm water bath to revert it back to a gaseous state, before being distributed through pipelines for consumption. In many regions, LNG is vital for residential use, including cooking, heating, and electricity generation, while also providing a cleaner alternative to coal and oil for power generation.

Industrial Applications and Fertilizer Production

LNG is extensively used in various industrial applications, including the production of fertilizers, plastics, paints, and pharmaceuticals. The Gulf region plays a critical role in the global urea supply, with many fertilizer producers currently facing operational challenges due to disruptions in LNG imports. The situation has caused major fertilizer manufacturing facilities, such as Qatar’s flagship urea plant, to halt production. Moreover, the Omani port of Salalah, which houses an ammonia storage terminal, has also been shut down following a drone attack on March 11.

Helium and Other By-Products from LNG Processing

Beyond its utility as an energy source, the processing of natural gas for LNG production results in valuable by-products, such as helium. This gas is crucial in various applications, notably in medical MRI and CT imaging, where it serves as a cooling agent. Global helium output is approximately 180 million cubic meters annually, but disruptions in Qatar may reduce the availability by around 5.2 million cubic meters each month, significantly impacting the market.

Global LNG Trade Dynamics

According to industry estimates, global LNG trade reached 411.24 million tonnes in 2024. The United States emerged as the largest exporter, delivering 88.4 million tonnes, followed by Australia and Qatar. China led importing nations with 78.6 million tonnes, with India and South Korea also being significant importers. South Asian nations such as Pakistan and Bangladesh are particularly vulnerable, as their energy needs are heavily dependent on natural gas imports from Gulf countries like Qatar.

Government Responses to Energy Supply Disruptions

In response to the energy crisis precipitated by the conflict, Pakistan has implemented emergency measures, including a reduction in the workweek for government employees and school holidays. Bangladesh, facing similar challenges, has sought international loans to stabilize energy costs and manage reduced gas supply. India, receiving a substantial portion of its LNG from the Gulf, has redirected its gas supply to prioritized sectors, leading to cutbacks in services for other consumers.

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