How many wake up calls does Europe need?

Hello listeners and welcome to Plugged in the Energy News podcast from Montel, where we bring you the latest news issues and changes happening in the energy sector. As the conflict in Iran drags on and the Strait of Hormuz remains closed, analysts remain divided over how long the disruption could last and the implications for global energy markets. Some believe mounting economic pressure could force some form of agreement by early July, allowing shipping flows to gradually resume over the summer.

Others warned the crisis could persist well into 2027 with oil and gas markets facing years of tighter supply, damaged infrastructure, and structurally higher prices. In this episode, we explored just how vulnerable global gas LNG, and oil markets remain as the Strait of ous crisis intensifies, and why many analysts believe traders are still underestimating the scale of the risk. Joining me to set the scene for this week's episode is Luka Dimitrov, who's Southern and central Eastern European correspondent from Montel News.

Warm welcome to you Luka. Thank you for having me, Richard. Glad to be here on your podcast. Excellent.

So we're talking about the Iran War. Where are we now? Exactly with Iran conflict. Luka, We're in a very unfortunate situation with a standoff between US and Iran and for gas and oil traders.

And the market itself is a territory in geopolitical sphere where the two main actors, us and Israel have not made their mind up yet, whether they're gonna continue confronting Iran and bombing it or whether they will be pushed by Iran neighbours to continue peace negotiations. Market is in a very animated situation. Gas oil traders are still pricing this huge volatility and uncertainty given the elevated gas prices on the Dutch TTF hub in Asia as well. It's a very uncertain territory in one word, with elevated prices around 50 52 euros per megawatt hours high end of March Richard.

So I think there are quite a lot of uncertainty and some of the European trading desk have woken up and they realise that some is ahead of us and there are different supply and demand dynamics across Europe and Asia. But we can talk talk about it a bit later as well. A absolutely. And you know, you know, we're nowhere near the levels seen in 2022, but still they are very elevated, these prices, as you say, Luka.

But this week in particular why have markets been paying very closely attention to what's happening in the Gulf? Well, we had the meeting between President Trump and Qi in Beijing, and currently we have the meeting between Russian President, Putin and China. And this geopolitical talks quite for the energy markets. One, whether China will continue to consume huge amounts of gas, where to buy them.

Russia will ramp up gas deliveries and LNG to China. Whether USA will step in and deliver more LNG to China, we don't know yet these details, but they're important for Europe as it'll need to review its gas storages, whether the ongoing LNG bank from Russia will continue. And at what rate whether Asia and Europe will compete for US LNG cargoes At what price? So the questions from these geopolitical meetings is what's next for Europe?

And also there is this debate from the energy regulator acer, about the storage levels. There is a talk about government subsidies in Germany, Italy to support gas injections. So there is a bit of politics, economics, and geopolitics involved this week that kind of keep gas traders on their highest alert in terms of prices and deliveries. And that's very interesting, Luka, I think what are you hearing in terms of the duration of the conflict?

What are analysts and traders telling you what they expect? To be fair, Richard, I haven't talked to a single trader that knows what's gonna happen tomorrow. Most of them are giving me a very short term outlook. Major Gus traders in Central Eastern Europe, even in southern Europe, Spain, Italy, and Greece included, they're forecasting end of the conflict by end of May, which is almost 10 days ahead with first major deliveries from Hormuz in August.

And this is the best price scenario, but it's very huge risk to, to forecast what's in the mind of Trump and Benjamin Netanyahu in terms of reopening Hormuz. Most of the gas traders are hedging risk, but there's also Asia gas demand destruction, which might change in few weeks when the heat heat wave, the forecast for summer heat wave is coming into Asia. And then you'll see might be a bit more elevated prices in Europe, in Asia as well. So yeah, it all hinges on when the straits of moves will open and whether this this terrible conflict will end.

So Luka, thank you very much indeed for setting the scene for us this week. You're welcome, Richard. So it's my great pleasure to welcome Henning Gloystein director at Eurasia back onto the pod, welcome Henning. Thanks.

Great to be back. Richard. We were talking about two months ago when we, maybe a little bit less than two months ago. Are you at all surprised about how events have turned out?

I think anybody who hasn't been at some point in some form surprised about how things developed in the war, Iran would not be quite honest. So yeah, of course we were surprised by quite a few of the events, the intensity. The on and off ramps, the negotiations that happen and they don't happen. What's happening Strait of whole moves and what's not happening.

It's a real rollercoaster and un unfortunately it's not a very healthy one for the world economy. And that's, I think, we can discuss a lot about impacts on what Trump will do. But the main problem is until this conflict is resolved the world economy will suffer. And we unfortunately don't see an easy way to resolve this conflict at the moment, but to me it's quite staggering.

He's presented the Iranians with one of the biggest gifts ever, which is this, the closing of the Strait of Hormuz that the known in the White House could ever have foreseen that this could have happened. Is mind blowing really. Yeah. Talk about things actually that were, that we were surprised by.

So one of the aspects at Eurasia Group that, we're proud of, that we got right, but then also we got something wrong within that forecast is we did say in early 2026 that it was likely that the United States probably together with Israel would strike Iran at that stage. We said by April, 2026, so wonderful, we got that but then we got something really wrong. And so the issue here is we'd heard from various sources in the US that the Pentagon and various parts of the military had advised Donald Trump say Mr.

President, if you're gonna attack Iran, you better put assets into the strait of Hormuz because they might attempt to shut it down. And based on that information, we then, said that there might be limited strikes. And the US would Strait reform would in some form stay open, but for some reason that advice wasn't adhered to. And here we're, so for all our amazing forecasting, we've got that part wrong.

And that means the impact that the Strait reformers now has been shot for something like 10 weeks coming on now is really quite, quite a damage to the world economy. And Why did, most analysts as well, not just, not yourselves, but several expected this to be short-lived and that the Straits would open. Why did they get this so wrong? Yeah, it's a good question.

Some soul searching must be done. Now, once this is over, in the moment we're all in emergency management and trying to analyse what comes next. But once we're through this is what went wrong in the analysis? I reckon, as I said, there was initial expectations that the US would make sure that the Iranians can't shut the Strait of Hormuz, but putting navy assets into the Strait of Hormuz, which they didn't.

Then the, a lot of analysts also forecast that if Iran was attacked again by the US and Israel, that these attacks would be limited, like they were in the 12 day war in 2025. And that then because of that also Iran's response function would be limited as well. But then what happened is that the US actually in particular, Israel took out almost the entire leadership of Iran. And then it turned out that Iran was actually capable despite the loss of its leadership to, to retaliate in very targeted fashion because they had this policy of preparing if a leadership one, two, and three are killed, then number four, five and six do X, Y, and Z.

And that is what's happened. So everything was more severe and then than we thought it would be. And here we are because the severity of it, the conflict is unresolved. And then on top of that, of course, in Iran, although so many leaders have been killed, the actual structural regime as the West media would call it, is still in place and seems quite entrenched.

Absolutely. Yeah. Yeah. And no, it's even anyway, yeah, absolutely.

And where they als are, who knows. But for them, as we've said many times in the media also says for Iran's leadership, survival is victory. And for the US, they can't achieve that by without going much deeper. So the question is now whether Donald Trump finds a way at for an off ramp that people talk about or whether he reengages by resuming hostilities, but then we're really worried about not just we having a good round world absolutely terrified.

What will happen if there's a resumption of hostilities? What would you say was the best case scenario here right now? Okay. So if peace breaks out tomorrow, then there is, and this is the positive news of this, there are very large international navy assets in the wider Gulf of Oman and the Arabian Sea already in place.

The Europeans have put a lot of ships in place. China has a navy contingent India as well. So if there was an agreement to see host that is semi credible, an international navy group could move into the Strait of Hormuz very fast, make sure it's cleared for mines and then allow for a resumption of shipping relatively quickly with the shipping and navy sources we talk to, we reckon that could happen. Then, from the point where a piece is somehow established, five weeks, maybe four, why not faster?

You do wanna make sure that there's no mines because the fear of a mine is as bad as an actual mine. Almost. Exactly The last thing you want, say everything's open, then a chemical tongue goes over. Oops.

Yeah. Or yeah. So that's a real risk and somewhat only the United States doesn't really have strong neighbours mine sweeping capabilities in the region. So you need other neighbours to do that.

And then you have a congestion issue that mean it's like a massive traffic jam. They don't just disappear, even if modes reopen open after major accidents. So this thing would take some time. So we think from the point of a credible solution to the conflict, five weeks, may four weeks, its very best, more realistically, eight to nine weeks basically means this summer.

Yeah. And that, the way things have been fluctuating over the past two or three weeks, a credible piece seems a long way off. Yes. Yeah.

Yeah. So there's a few things, until we get there, even with, without a resumption of hostilities, there's some real risks here. So at the moment, more ships are getting outta the Strait of Hormuz, and I think most people realise. So you originally put out a note on Friday last week saying that we reckon probably, I dunno, between six and 10 relatively big ships get through every day.

Every day. Yeah. Yeah. And I saw Lloyd's list is presently similar recently, so there's a little bit more coming out, which probably helps explain my, some of the worst fears of jet fuel shortages of fertiliser shortages haven't quite yet happened.

If you remember, there was a few weeks ago people were saying like, June, that's, and that's not gonna happen. But of course it's not a permanent solution. This is like putting, bandaid on a giant wound cut. It's, so the longer this goes on, at some point something will break.

And this is what we think is the biggest risk at the moment, is that at the moment it seems like we're getting by China's de oil imports have gone down and the LNG imports are at eight year lows and Europe somehow scraping by fine until we're not. Until somewhere something really derails. Which could be what, for example, it could be a major the first images of mass diesel and petrol shortages in Europe or United states or in the States. Yeah.

United S are doing very low. And then the United States puts out export fuel, export restrictions. If they do that Euro airport almost certainly have to follow suit almost immediately. And then other areas have to do that, and then suddenly the entire market freezes up.

That would, that's actually a very good example of what might happen. Could happen in Singapore, something in the bunk of fuel markets. Some major shipments have cancelled and suddenly a thousand containers aren't arriving West coast, United States, who knows? But this is the sort of crisis that we think it's happening.

Sort of getting, like when you have the onset of a flu, it's getting worse steadily until at some point you realise I'm really sick. And I think this is what's happening with all markets. And it'll continue until this is somehow resolved. Yeah.

We'll come back to that later. But in the six to 10 ships Henning what kind of ships? Ships are they dry bulk? Are they oil?

Are they LNG tankers? What's your analysis? They're mostly, Chemicals of fertiliser tankers and LPG tankers. Those two are biggest, that's the most urgent for markets in South Asia.

You need to get the fertiliser into the ground by June for the monsoon sewing season so that you can harvest by monsoon. So that's really quite urgent. And LPG is the cooking fuel across South Asia. It's in very short supply.

There's literally millions of households who are eating raw coal. So those two are priority energy tankers are getting out. And there's probably paid, I dunno for sure, but the Qatari have some form of a accord with Iran. Some of that's getting out.

And then the Iranians are getting cr tankers out mostly to China because the US blockade isn't stopping those. And then there's a couple of container ships and dry bulk ships out as well. But the majority of the ships that we're aware of that are going through even without a satellite responders are chemical and Okay. That's very interesting.

We've on Montel news reported on, certainly on the LNG ones that have slipped through, Trump keeps threatening force, but also then delays escalation. We've seen it very recently this week. Does that, does that uncertainty, what does that mean for the energy markets or for gas and LNG in particular that we have zero visibility. What happened over the last, whatever it was, 48 hours with Trump saying that he's called off an attack after, the GCC countries beg him not to attack.

So that's, I don't really know how to put this or how do it, but just re deescalate. It's like you're, you are escalating saying I've called off an attack. It's okay, nobody's really aware that US was about to attack. So he's saying we're about to attack, but then I was pressured not to attack, but it's left hanging in there.

But maybe we'll attack very soon. So basically he's we, he's telling the world that he's not gonna tell them what they're gonna do. I fear that it's because the US government doesn't really know what to do because they're not happy with what they've offered Iran and what Iran is offering in return. So there's very little Iran overlap at the moment.

And, but the, at the same time, the US is feeling that without a major resumption of hostilities, they can't pressure Iran into anything else. And so what are the alternatives for the US Would it try and be to try and decapitate, as they call a kill more leaders in Iran and hope that takes out the more radical ones? Would it be taking some of the islands in or near the strait of Hormuz or Cog Island? The the famous oil terminal in Iran, but all of that, of course, risks casualties, right?

Severely, it also risks Iran retaliating. We know that they've retaliated very in, in a very targeted manner, and we know that they can use much stronger missiles if they want to on existing infrastructure that hasn't been hit yet. That would mean then oil and gas and whatever else. Prices could go much faster.

Is that the worst case scenario? I'm also hearing some, people saying this could be shut the whole year. It's not permanently shut. Things are slipping through of course, but in that this could drag on beyond the summer.

Is this that's, so obviously the worst case is that it drags on the whole of the year or and beyond, but is that realistic or, yeah, I think it's, no, I think it is a realistic risk. I don't know what our latest probabilities are, but I think there are at least roughly a third that would come out of this small hemisphere summer. So let's say September. And it's still not probably resumed because neither side is given way.

It's very possible, yes. However, it is still our base case that at some point, so I think it's very close almost a coin flip, 55, 45. I think you list ability say that some form of an agreement will be reached by July 1st, but with a very low con conviction rate. Why would we say that?

The economic pressures on both sides are really high now, and the blockade is hurting Iran and the economic situation in the world and the US is getting worse. Bond markets could wobble, the dollar could slide. The SP 500 could take it. Market suddenly changes its mind.

There's also things that could happen during the soccer World Cup. The North America. It's there's a lot of things that are worth keeping in mind at the moment that that could flip market sentiment. And we know that Donald Trump is sensitive to that.

So we reckon that sort of the pressure point economically for neither side is high enough yet. And that's why we haven't achieved anything yet. But by July, we think the pressure point will be there. And, and there's, there must be pressure building from all of the allies, from all, from Southeast Asia.

You mentioned the cooking for, shortages. Jet fuel seems to ease a little bit, but that could really kick in. And obviously when it hits the American motorist hard, that's probably when, maybe things will accelerate, but, but markets seem to be not pricing in this risk heading. What's why is there, there seems to be a bit of a disconnect here.

There's definitely a disconnect, especially equity markets. I'm not an equity market there expert. But it does seem that if you look at global equity markets, they're so US dominated now that there's a sense in equity markets that US has shielded from this, and that this is a problem for Indo-Pacific, for emerging markets, for those Europeans are weak anyway. And in some ways that's true.

Four and a half dollars per gallon of gasoline in New York is way cheaper than it is anywhere in Europe. That's, I think the UK price would be something like 11-12 dollars. Yeah. So it, they are relatively shielded and they're, I don't think there'll be real shortages in the us So I, I reckon that's a little bit why equity markets are behaving the way they are, but also it they clearly still think or hap and have been thinking that this conflict would be over quite fast.

So if, as you mentioned earlier, if we find ourself at the end of the summer holiday season, a little hemisphere, we're looking at the winter season and this is still not resolved. And I do think that equity markets would take it. And whether it's equity markets or the dollar or the bond markets, those three are pain points for the United States. I don't think he cares much that the Europeans or the Brits call him up and say, oh, we're low on fuel.

They say that's your problem. You can buy America. Yeah, exactly. Yeah.

Yeah. Yeah. And buy more of our LNG, that's an easy way to fill your gas storage Europeans. Yeah, yeah.

Who, what I find amazing though is in Asia-Pacific, it's really a quite an astonishing little thing that's emotion is actually not little at all. China is the world's biggest import of crude oil and natural gas. And they have probably, at this stage, been less impacted as a society, as an economy by this crisis than the United States have. Although they're the world's biggest producer of all in natural gas.

And that's a combination of electrification and of course stockpiling and hoarding, which has allowed them to reduce consumption on imports quite significantly without drastically reducing consumption at this stage. So it's remarkable how China's coming out of this, which is also a reasonable, one of the reasons that helps explain why China's been so quiet about this. Yeah. They can this one out And they're probably burning more coal as well.

But, yeah, and that was gonna be my next question really, Henning. In terms of China, it's quietly becoming one of the most important players in the story. Why? Why is that?

We've had, Trump visiting Beijing now, Putin is there as we speak. What, what's going on? What's China thinking here? I can't be too sure, but house views a little bit.

China is willing and able to sit this one a, they're watching the United States lose credibility with their allies, with their adversaries. The mighty US force couldn't suby when the us you know, p Ptech, the defence secretary, or war he calls himself says, this has been the most, the biggest and most successful Air Companion in history is that whoa. But the Strait of Hormuz was open before this conflict and s now Yeah. And regime is in place.

So it's a huge loss of credibility. There's the reports that the US is running low on stockpiles, on missiles, ammunition. That of course, from a Chinese point of view is positive to be aware of and to know the Europeans are suffering economically that they're competitors of China and seen as a border of the same bucket as the West, as the United States is. And some people in Europe think we're not the Americans, so we can do a deal with China.

But our view is of that is not how China sees Europe. They see us as weaker, part of the same box of the United States as sitting in. And China is gaining economic and political, geopolitical and diplomatic traction. They initially had a fuel export restriction at the start of this conflict.

They've lifted that at least partially They felt supply fuel to Australia to parts of Asian, which is clearly, there's a political messaging here. It's like we are hit by this crisis just like everybody else, but we are helping our friends and United States, it's not. It's a stand back and let the US play this one out as badly as they are. It's take a long-term benefit.

And of course their energy and resource policy has been absolutely vindicated. One of our top risk return 26 was that China is going full down electrification of everything while the US is wanting to build hydrocarbons into long term supply chains. And they wanted bought to bully other trade partners and into doing that as well. China's path is the one that's winning electrification works, raising domestic supply even in the short term coal.

And that it does work. And the fact that they build, have most of their supply chains at home, critical minerals and that they've Ted all the stuff that they need to import. It's worked and it's being noticed, Could China emerge as a key broker then between Iran and the us or does it wanna stay out? I reckon China could emerge as a broker, but I don't think it wants, and it will.

And it looks a little bit that China doesn't want to get involved in the conflict in the Middle East right now. They don't be taken to be seen to be taking too much of a side of Iran because of course Iran is also playing us. I mean I know that a lot of sympathies are a little bit with the underdog and the Iran Iranians, 'cause they didn't initiate this attack, but they did close down Strait of Hormuz. And they did lash out at uninvolved nations and not their own people.

And that'd be absolutely, they have mainly gone down houses as their own people. And we don't think, and I don't think Iran the China wants to be seen too closely aligned with Iran here. Iran and China are ideologically and politically. It's it was a convenient source of supply, especially in oil.

But I don't think China wants to get too deeply involved here, especially not during a conflict. It's possible that in the post-conflict scenario where the US might emerge weakened, that China picks up the pieces and says Hey, Pakistan, we seen here Pakistan is currently the broker potential broker between Iran and the United States. It used to be Oman and as Pakistan. And of course Pakistan has very close ties with China.

So backdoor diplomacy there is happening. But overall we don't think China wants to get too deeply involved. On, just like it hasn't been Ukraine. Yeah.

Absolutely. Stayed away. What does it say? What does, what does the future hold here for, the export or production and export of fossil fuels from the Gulf States?

I think it, it raises huge question marks around the security of supply from that region. For Europe in particular. Yeah. There're gonna be fundamental changes that are irreversible without a doubt, even if everything returns to normal next week.

Which you want. So for example, Henning, what's take for example all the contracts that are fallen under force majeure already there's dozens of them and only few of them got reported. Mean cut out, did that some force majeure basically, when the recipient of the force majeure basically is then free to sign your contracts and they will, because they need the gas. And if there was a force majeure on sub chemicals or RPG and health, whatever, cruel, it's the same situation.

So people the buyer will seek new contracts and the longer this takes, the more new contracts they will sign up to that will be not from the Middle East because you can't get it from the Middle East. So there will be already a permanent reduction of Middle East and oil and gas supply to Europe and to parts of Asia because of this crisis already. The other part, of course, is decarbonization. It's like we, this is, and this being said so often in the moment, but it's because it's true if for any importing nation, whether you're in Asia or Europe, this is the second geopolitically triggered fuel supply crunch in five years, we can't have another one in the next couple of years, it'll break us.

And whether in Japan or in Germany doesn't really matter. And that means you, this electrification that China has showed the way how to do this. They're gonna look at this in India, in Germany, in Japan, I mean in Japan, they're trying to accelerate the return of every single nuclear power station. That's been moed since Fukushima.

In Germany, the industrial power price cap is linked to reinvestment, into clean domestic power infrastructure. In the UK we're seeing gas being taken out of the power, those a marginal pricing system and long term PPAs for existing carbon assets, which basically tells you there's an incentive to, to invest into more clean assets there. And so every country will find its own solutions. India will probably try and replicate what China does, but coal use and avoid LNG imports in future.

They are so screwed over by this because there's war in the Middle East. Before that, there was a war in Ukraine and there was Fukushima in Japan, and then there's a cold snapping China. These are all things that driving fuel costs for India for that has, that have nothing to do with, and they have no control over. Yeah.

So the and we already saw this in 2022 during the Ukraine gas crisis in Europe, you can't return to a status quo anti in this disruption is so big. New agreements, deals, and investments are made mean that even if the Middle East returns to a very peaceful and stable situation, let's say by the end of this year, a lot of things will change. And that's not to say that I, I think the Gulf region will fall in on each other. There's a lot of substance there that can recover.

They do have a lot of cheap and competitive oil and gas and chemical and aluminium supplies that the world wants to buy. So I think they'll recover, but it won't be quite on the scale as they were before. Yeah, and I think certainly Europe has set that ball in motion. There is an acceleration of renewables build out.

If only then Europe can sold out little problems like solve problems like, oversupply, negative prices, curtailment and cannibalization and congestion. Those are the three, those are the areas which that need to be solved before we can really go full steam ahead. That's the nitty gritty of electricity markets. So that we're talking about geopolitics and fundamental ruptures, but actually in the end, we need to resolve electric negative electricity prices.

Absolutely. Henning. But it's true. Yeah it's very true.

On that note, Henning, thank you very much for being a guest on the Plugged In podcast. It was great. Yeah. And now we cross the Saul Kavonic head of Energy research at MST Marquee, to weigh in on his predictions for the reopening of the Strait of Hormuz and what that could mean for global LNG and oil supply disruptions.

A warm welcome Saul and welcome back to the pod. Always a pleasure. So Saul, we were talking earlier, I was talking with Henning about scenarios for opening the Strait of Hormuz. What's your view here?

How, what, how likely is that to be open before the summer even? Henning is, in my opinion, one of the top analysts who cover oil and gas markets in the world and certainly in Europe. At risk of disagreeing with Henning. I suspect Henning might be too optimistic.

Now, if I could just touch on what the scenarios actually look like on our modelling for the Strait of Hormuz was opening. And if we start with the best case scenarios. So let's imagine that some miraculous deal is secured tomorrow and the Strait is fully opened up unencumbered with no further threats and the minds that are in place, et cetera, just don't pose an issue. Now even in that world, we are looking at a three to six month timeframe to see a full normalisation of flows and several things are driving that, but a lot of it is the shipping logistics.

We need to actually get empty tankers back into the strait, ready to pick up volumes out of the current stocks, which will be needed to make room before you can then restart production at a lot of shutting facilities. That's a major logistics exercise. On top of that, there's going to be potentially months longer to repair some of the damaged infrastructure that's taken place and particularly some damaged reservoirs. We are not sure, for example, if all the Iraqis shut in fields will be able to fully recover given the damage that could have done to the reservoir itself.

And when you put that all together, I think you're looking at the three to six month window again in the best case scenario. And that's before factoring in that the sort of damocles we hanging over the Strait on a forward looking basis where you have an partic an emboldened Iranian regime, which is increasingly paranoid and hard line, which will look to thread in the Strait for every small little political thing they want going forward. Now that picture therefore has some implications.

Now what we must remember is to date, we're looking at close to a billion barrels of implied stock draw since the beginning of the war. And that could increase to one and a half million barrels again, in that best case scenario I've outlined. So again, in the best case scenario, even once you have a normalisation of flows, you still then need to replenish the stocks that have been lost, these record stock loss, which could take one or two years and add a few percent to oil demand through that period.

And on top of that, we're gonna see policy all around the world to try and increase stocks to even higher levels than prior to the war precisely so that countries like Australia and many across the world don't end up in such a vulnerable situation again. So it's gonna put upward pressure on demand as well. And that I think, actually suggests that we are going to see significant tightness in the market that goes well into 2027 and even into 2028. And this is the best case scenario.

Now let me just run you through what I think is a more realistic case scenario. And that is that we see a slow and partial opening up of the strait. So whether that's for example, by convoy system under still the threat of some kind of intimate attacks, or whether it's a wrong retaining control and cutting bilateral deals here and there, but not with everybody. And in that world, we are looking at an additional three months or so before everything gets back to normalcy and perhaps still never gets to free war levels.

We might only end up 80 90% of pre-war levels. And in that world we an implied stock drop of over 3 billion barrels. Wow. So that's not quite what Henning was saying, but I think it's fine that you esteemed analysts disagree on this area, but if we, you're talking about oil, so bring you back into gas markets, what are the implications for gas and for LNG production and export in the Gulf region?

Certainly and I must say I think it's really welcome to have those kind of different perspectives of modelling on this. I think, being able to contrast that is what be able to tease out a lot of the insights. So that's the oil piece. And the reason that oil piece is important is, again, so much of the LNG contracts, particularly in Asia, are still linked to oil and in particular a lot of them are still linked to JCC.

And JCC tends to be more linked to those grades coming out of the Middle East. Could you just explain what JCC is? Sorry. So for those JC sneeze, the, it's the oil market, a Japanese crude cocktail, which is the average landed price of crude that goes into Japan.

There's a huge lag impact on it. You, so when oil goes up today, you don't really see it flow through into JCC and ultimately into LNG contracts until a few months later. But those crew grades are tending to potentially trade at a premium, even to Brent. And so that's gonna flow through on that as well because it is those grades that typically would come out of the Middle East.

And because there's so much flex in a number of the contracts that go into Asia, a higher oil environment is important because it also ends up providing a flaw on where oil, on where LNG prices can go. Because ultimately if LNG spot prices move out of the range of contract prices, people start switching under the flexibility of their contracts to optimise that. So let's go to LNG. So we've got about 80 million tonnes per annum of capacity, roughly, which is offline as well, through the Strait.

Now, there's a lot of parallels between what happening now and what's happening in 2022, right? But I wanna highlight on what the difference is. So in 2022, Russia turned off the equivalent of about 60 million tonnes per annum of gas into Europe. And as a result was Europe had a number of demand management measures, but also sucked huge amounts of LNG outta the market, particularly taking it away from South Asia.

Today we're facing, I think, a much more acute risk than we saw in 2022. And the reason for that is, first of all, it's 80 million tonnes rather than 60 million tonnes. Second of all is, in 2022, all the easy levers around the world to reduce gas demand we're pulled to deal with that shortage and they're not available to be pulled again. And so now you much more quickly end up in demand destruction territory and forced demand destruction rather than being able to be more focused on efficiency gains.

And then lastly is, and perhaps most importantly this time around Asia is directly affected. So Asia was a secondary impact from the 2022 war with Ukraine. But now this, these are LNG volumes which directly went into Asia. Now thankfully, the timing of this disruption has happened just as we're seeing ramp up of new LNG out of the US and we're in the soft shoulder season, right?

Unfortunately, we entered this and Germany was near record by gas stocks, again, heading into a major supply disruption due to a war. And this is where those of us in Asia are just look at gobsmacked at Europe and they managed to do this every single time. But, I'll leave that to the Europeans to try and explain that. So we've got that now because of that lull shoulder season right now.

And because there's still a wide consensus expectation that for war and ultimately that Strait of Hormuz from will open the wall will end, the Strait will open reasonably soon. LNG prices have not, they're up now. They've almost doubled where they were. And the forward curve is still double digits through 2028 now.

But it's still well below the highs that were seeing in the Ukraine. Wall pressure though is only gonna grow, particularly if the Strait remains close for the next few months, which I think is close to inevitable to at least a partial degree as you head into the Northern Hemisphere. Summer season is gonna say a pickup in demand in Europe and Asia. We're gonna have to see Europe at some point look to rebuild it stocks ahead of winter.

And I think you're gonna start to see more pressure, particularly as you see Northeast Asian LNG buyers compete more directly with European buyers, potentially government backed on both sides. And that could see upper pressure on LNG pricing over the course of its three to six months. Again, even in the meta case scenario, it's regarding Strait of Hormuz. So if we look at European gas price at the moment, they're for the front months on the forward curve, they're around 50 euros per megawatt hour on the TTF, the Dutch TTF, it, it's the market pricing, this huge amount of risk that you are talking about here.

So it doesn't seem to be. I'd agree. I don't think the market on both the oil side and the gas side are pricing in the scenarios here. I think they're pricing in best case scenario outcomes for the most part and not really factoring in both the amount of time it will take for flows to normalise even in that best case scenario, let alone worst case scenarios regarding how the war plays out.

And we haven't even covered the doomsday scenarios where a war kind of more kinetic action actually takes place and more infrastructure is directly hit and damaged, which will then knock it out for years, and that brings you to that on the LNG side of the equation. We've obviously though, tho those Iranian attacks on Rasafan in Qatar earlier on in the war, those were random attacks. So for those of folks who haven't seen an LNG plant, they're massive, right? They're these huge structures of steel, several busque or courts in size.

What those two missiles hit when they hit the two trains was the one quite relatively small piece of kit on both trains called the cold backs cold box. This is the key heat exchanger essentially calls the gas down to liquefy natural gas. That's the one piece of kit on NLG trade that is not easy to replace, which is not available off the shelf, which has multiple year lead times. And so those with deliberately targeted, which it knocks out 14 million tonnes per of Qatari capacity for three to five years.

And that's why Qatar was able to come out so quickly. This wasn't optics, this was, they realised the most difficult piece of kit to replace has now been knocked out. It's likely there's been some residual damage on some of the trains, not those two trains, but neighbouring trains there as well. And this is really high precision kit, which means it will take longer to restart.

So you put, the market can manage 14 million tonnes pound, knocked out for three years given the increased supply that's coming outta the US. But if we so war resume and potentially a few more trains start to be knocked out, then that's lasting impacts on gas or even after the war ends for a number of years. Which again, this is not something the market is even seems to be pricing in a small risk of at this point. So when would you expect potentially market, gas prices to rise again?

You're talking about potentially summer when you know the optics aren't that great. The end of the war doesn't look any closer. And then could we see, TTF prices going up to 70, 80, even up towards a hundred. That's, I think the real that we're in and we can easily get 50% higher than we are here.

Being in Asia, I tend to focus more on the, dollars per MMB to U, but we are currently around 20, easily could go to 30 or 40, which is in line with the US TTF prices. And the pressure here builds, absent direct attacks, memorial energy infrastructure, the pressure here builds incrementally every day that goes past that the production is shut in, is putting more pressure on stocks and more pressure on stocks. And I think we're going to see that just incrementally build over the next few months.

And really by the time we get to, if you fast forward, say three or four months, and we are at a point now where we're more, we're getting more of a peak in demand and European stocks are staying relatively low and well below the average, then you're gonna start to see, more panic ultimately set in the market. Because now we have to worry about how do we get through winter, particularly if we're not sure the Australian rules will even be open by winter at that point either. So that's not, I don't, that's not a best, I think best case scenario, we avoid that, but that is a very realistic scenario that's still on the cart, which could see prices, I think remain, yeah, again, 50% elevated from current levels easily.

That's fascinating stuff and the way that, the market isn't pricing in this huge geopolitical risk. It seems to be underestimating of what's happened, particularly, in the Gulf. Not only the Gulf, but in other areas as well. But how, you said you're flabbergasted by, Europe finding itself in this situation, again with very low or almost annually with very low stocks.

What are the options, Europe has in particularly countries like Germany, which really needs to fill those gas storage facilities before the onset of winter. Oh God, I don't think it's necessarily appropriate for me sitting outside of Europe how to do things. But clearly you did see a relaxation of some of the requirements to fill stocks last year, only three years after the Ukraine war. It's remarkable how quickly a level of complacency set in, again, before this, scenario has happened.

And this scenario is, this is the doomsday scenario of energy markets. That's been war games since the 1970s, right? And this is over three times scale of disruptions we saw in the wake of the Iranian revolution with a oil embargo, and it's now impacting global gas and oil at the same time. So the ability to substitute's not there, plus it's obviously impacting food, which indirectly is impacting gas.

So this uptick in gas demand, just as it can't be met to feed people in the second half of the year. And it's a bit rich I guess for me as an Australian, given the level of complacency we see in Australia on another national security fronts as well. But 2022 was meant to be the wake up call. And you know better than most, how many times do we see headlines?

This is the wake up call on energy. This is the wake up call on making sure on gas, on oil, on a redundancy in our supply chains, particularly our energy and fuel supply chains. There's been like thousands of wake up calls, headlines, everyone's been talking about it, and three years later. Is this really another wake up call?

Or is this just a confirmation that we choose to remain asleep? And what are the implications for industry? You talk about demand destruction. Is this the final, the death No.

For certain parts of industry, heavy industry in Europe that very much reliant on supply and competitively priced gas? Yes and no. And the reason I say no again, comes down to the difference with the 2022 scenario, which is this is more directly impacting Asia. So a lot of Asian customers have now lost and had forced major called on their supply at relatively lower oil link prices.

And so actually this could have disproportionately hit industry in Asia more than Europe this time. But ultimately, the biggest winner out of this is gonna be the United States where they're they're still impacted by high oil prices, that they're not impacted by global rising gas prices. Their gas price remains low. If anything, we can now see increased Permian production, which even puts more downward pressure on gas prices, virus associated gas production.

And the reality is the US industry from anything that's gas dependent is gonna be a winner out of this. We'll see even more industry move to the United States where it's proving that in the face of major maritime trade disruptions, US gas prices remain more competitive than almost anywhere else in the world. And I one thing's probably for certain in all this periods of uncertainty is that it's gonna be a very rocky right, in the, over the coming months. Wouldn't you agree?

So it is, and a lot of the redundancy is no longer in our system. And I'd say one of the last things here is we tend to be very focused on oil and gas and fertiliser and, helium these days. But supply chains for a lot of manufacturing, particularly for EPC kit in energy comes out of the Middle East and basically things like steel and many others. And that has also been disrupted through this process.

So our ability to rebuild after this and repair a lot of energy infrastructure, to produce more energy will need to rebuild those stocks is also gonna be hindered by the very same war on the disruption through the Strait. And again, that's gonna slow the pace of growth of supply, not just within the Middle East, but outside of the Middle East for several years to come. It's quite a bleak picture, I think, not just for Europe, but for globally and for, for consumers of just normal food stuffs as well as energy going forward.

So thank you very much for your insights and views here. Brilliant as ever. And all the best. Thank you for being a guest.

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