Maguire: Iran war is worse for natural gas than oil.

The Iran war seems to have a similar impact on oil and gas, as missiles, drone attacks and shipping disruptions clog up the Strait of Hormuz.

Underneath the surface symmetry, there is a serious imbalance. Gas consumers are more affected by the 'global supply chain' because it has less rerouting and storage options than the oil markets.

The construction and repair of key gas infrastructure, liquefaction plant in particular, is more expensive and complex than the equivalent oil infrastructure. Oil refineries are able to resume operation more quickly after a shutdown than export hubs for?liquefied?natural?gas.

The prices have shown the imbalance: European and Asian benchmarks for gas have increased far more than crude oil in the time since the conflict started, a difference that indicates gas will take longer to recover than oil.

BAD TIMING

This disruption could not have come at a worse time for gas.

According to the Energy Institute the growth in global gas demand is roughly double that of oil over the last decade. This is due to the expansion of pipelines and storage systems. This growth trajectory was widely expected to continue in the future, particularly as emerging economies move away from coal.

The global LNG industry has grown steadily due to the positive outlook for the gas market.

The world's second largest LNG exporter, Qatar, has suddenly ceased to export LNG after Iranian attacks cut off 17% of its export capacity.

The resultant increase in gas prices has served to warn consumers about the dangers of heavy import dependence and is likely to slow down the addition of gas-fired energy capacity.

Gas for electricity has never been so affordable.

Solar panels and batteries are a cheaper and faster way to boost electricity than constructing new gas facilities, which may take many years.

Costs for gas turbines, in particular, have also risen this decade due to global shifts of manufacturing capacity and the soaring demand from wealthy economies that are building data centers.

SHIFT PIPELINE

These forces have already begun to reshape the areas where new gas capacities are being built.

Global Energy Monitor reports that the U.S., the world's largest natural gas exporter and producer, has increased its share in the pipeline planned for new gas capacities from 10% to 33% by the beginning of 2026.

Gas power components are being sought by U.S. utilities, and other tech giants to increase electricity for artificial intelligence applications.

This aggressive push squeezes out cost-sensitive markets. India, a fast-growing economy that was once expected to be a major consumer of gas, has cut back on plans to increase gas capacity.

India's energy firms are adding coal-fired power to their mix of power sources to offset this. India is expanding its oil refinery base, and it is expected that fuel production and exports will grow through 2030.

Storage Squeezer

Gas storage is more difficult than oil.

The crude and refined products can be stored easily in land-based tanks and on ocean tankers. This will help to prevent supply disruptions.

Natural gas, on the other hand, takes up much more space when stored at normal room temperature. It must then be compressed or supercooled to a liquid form for better storage.

This limits the storage of gas and increases its cost.

Gas consumption is also highly seasonal. In most countries, demand peaks during winter but drops sharply in shoulder seasons.

The demand for refined fuels is fairly consistent throughout the year in many major economies.

Storage operators are unable to profitably time their sales and purchases due to the large fluctuations in gas consumption. This is unlike fuel storage companies that can expect multiple tank farm turnovers every year.

THE BOTTOM LINE

The war has caused significant disruptions to both oil and gas flow. The oil industry is expected to recover faster.

The major Middle East oil producers are already redirecting supplies via pipelines outside of the Strait of Hormuz. This should help oil supplies rebound even as the Iran Conflict drags on.

The global gas system, on the other hand, has no immediate way to overcome the sudden drop in Qatari gas supplies. This will have repercussions throughout the gas supply chain and may accelerate the search for alternative fuels by industry and power companies.

Even a quick end to the fighting will not bring much relief to gas prices. The damage to Qatar's exports alone is likely to take many years to repair and those buyers who have already started to shift away from gas are unlikely to change their minds.

It is likely that some major economies, such as the U.S., will continue to be heavily dependent on gas.

In response to recent gas supply cuts, more cost-sensitive markets could collectively 'curb' their exposure to gas, leaving a permanent mark on an industry which, up until recently, was gearing itself for the exact opposite.

These are the opinions of a columnist who writes for.

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(source: Reuters)