The US-Israel war on Iran reshapes global liquefied natural gas trade; Australia is the main beneficiary.

A war between the United States and Israel against Iran has reshaped the global liquefied natural gas (LNG) market, boosting producers outside the Middle East; this positive effect may linger for a long time even after the current conflict ends.

One of the main beneficiaries is Australia, which last year slipped to become the third-largest exporter of superchilled fuel, behind the United States and Qatar.

But because the Strait of Hormuz is effectively blocked and Qatar’s LNG exports are disrupted, that means that even if this narrow waterway were reopened and shipments resumed, Qatar this year is very likely to give up second place again to Australia.

For Australian LNG producers, the short-term boost is obvious—higher prices. Since the U.S. and Israel launched airstrikes on February 28, Asian spot assessment prices have doubled.

In the week ending March 27, spot LNG prices delivered to Northeast Asia closed at $19.30 per million British thermal units, down from the four-year high of $25.30 set the previous week, but nearly double the $10.40 for the week of February 27.

The surge in spot prices, as well as in long-term contract prices linked to crude oil, will boost the profits of Australian LNG producers.

Because several of Qatar’s LNG plants were damaged in the attacks in Iran, restoration work is estimated to take as long as five years, so even if new projects in the United States and elsewhere come online, LNG supply is still very likely to remain constrained.

For years, Australian LNG producers have believed the country faces a risk of investment flight due to regulatory burdens that are too heavy for developing new natural gas supplies, excessive environmental activism, and a federal Labor government that is more focused on climate change than on energy security.

But this week, at the Australian domestic gas outlook conference held in Sydney, the tone among industry speakers has already shifted. They are optimistic that the Iran conflict has brought opportunities that should not be missed.

The biggest opportunity among them is to leverage Australia’s strong reputation as a reliable LNG supplier to Asia, attracting more capital to develop onshore and offshore natural gas reserves.

This would help resolve a long-standing tension between LNG exporters and the domestic gas industry, which has long accused export plants of causing tight local market supply and driving up prices.

At present, Australia’s densely populated eastern states are considering implementing a natural gas reserve policy, and the industry generally supports it.

The key is to secure domestic supply at competitive prices, but not to inject unnecessary gas into the market—thereby keeping prices at a level that producers who are only serving the Australian market cannot profit from.

If the industry and the federal and state governments can reach a mechanism to supply the East Coast market, it would greatly help provide the regulatory stability needed to scale up the LNG industry.

There are three LNG plants on Australia’s East Coast, which consume about 75% of the available natural gas, while the remaining quarter supplies the domestic market.

If new natural gas basins are developed—for example, the Beetaloo Basin in the Northern Territory—then there will not only be enough supply to meet domestic demand, but it could also increase utilization rates at existing plants, and even potentially provide feedstock for new LNG production trains.

Mindset shift

Designing a mechanism that both ensures supply for the domestic market and maximizes output from LNG plants seems simple, but this issue has been unresolved for more than a decade.

The crux lies in a change in mindset, and the Iran conflict is precisely the catalyst for that shift.

The federal government must shift to prioritizing energy security over climate targets, and there are signs that this is indeed the case.

Nearly 80% of Australia’s liquid fuels (such as diesel and gasoline) depend on imports, and these supplies are at risk due to the closure of the Strait of Hormuz.

But equally important is that the countries that supply fuels made from crude oil transported through that strait are also mostly the same countries buying Australia’s LNG and coal—for example, Japan, South Korea, and Singapore.

These countries want Australia to guarantee that it will continue exporting these bulk commodities, just as Australia wants to ensure that refined fuels can continue to reach their destination.

Just as the opportunities that the Iran war brings to Australia’s LNG industry are waiting to be seized, there are also threats stemming from policy mistakes.

The Australian federal government is facing intense pressure from both the political left and right to impose windfall taxes on LNG exports.

The industry believes that any short-term gains brought by higher tax revenues will be offset by the long-term damage to Australia’s reputation as a stable destination for investment.

This argument makes sense, but overcoming populism’s impulse to grab money will be a challenge, because politicians can easily pander to voters—even if it is bad policy.

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