Will the Middle East War Bring Windfall Profits? Securities Sector Stirs as LNG Investment Heats Up [Weekend Money]

Daishin Securities Predicts LNG Facility Expansion After Hormuz Crisis

"Value Chain to Benefit from Import Diversification and Infrastructure Construction"

As the Strait of Hormuz—a key chokepoint for global oil transportation—has been blockaded due to the Middle East war, demand for alternative energy sources such as liquefied natural gas (LNG) is expected to rise. Daishin Securities predicted that this restructuring of energy supply chains will benefit companies positioned within the LNG value chain.

On May 3, Jangwook Park, a researcher at Daishin Securities, stated, "Since it will be difficult to normalize the existing Middle East-centered supply chain in the short term following the Strait of Hormuz crisis, major energy companies and importing countries are expected to ramp up investments in facilities to address supply shortages. In particular, due to the structural nature of the LNG market, which has virtually no spare production capacity, we believe the market is not only entering a phase of price increases but is also moving into a capital expenditure (CAPEX) cycle for expanding physical supply."

The Strait of Hormuz accounts for 20% of the world's oil and 20% of the world's gas shipments. Daishin Securities projected that with the realization of geopolitical risks from the latest Middle East crisis, the energy market will shift toward reducing dependence on certain countries and diversifying sources. In particular, Asian countries such as Korea, Japan, and Taiwan have historically shown high dependence on Middle Eastern oil and gas. Korea and Japan rely on Middle Eastern oil for approximately 90% and 70% of their imports, respectively, while Taiwan's oil dependence is also around 70%.

However, while oil can be easily stockpiled, providing some buffer even if the crisis is prolonged, LNG—which is difficult to store—faces greater risks. LNG requires storage at extremely low temperatures of -162 degrees Celsius and has high maintenance costs, so unlike oil, it is not strategically stockpiled for months or years. Countries highly dependent on LNG transported via the Strait of Hormuz include Pakistan (99%), Bangladesh (72%), India (53%), Taiwan (38%), Korea (15–35%), and Japan (5–10%).

Regardless of the Strait of Hormuz crisis, diversification of LNG import sources is structurally reducing energy dependence on the strait. This is because demand countries are reorganizing the geographic portfolios of their supply contracts to non-Hormuz routes. CPC Corporation Taiwan has increased the proportion of U.S.-sourced LNG from 10% to between 30% and 33%, while KOGAS (Korea Gas Corporation) is implementing a plan to cut the share of Middle Eastern LNG from the previous 33% to below 20%. On the supply side, large-scale expansions of non-Hormuz routes are also underway.

Major countries are also making efforts to secure LNG storage capacity. Among them, Korea is the most proactive, currently constructing ten 200,000-cubic-meter tanks in Dangjin, South Chungcheong Province. The POSCO Gwangyang Terminal will secure 1.33 million cubic meters of storage by the end of this year, equivalent to 40 days of national heating gas supply. In Taiwan, where reserves last only 11 days, CPC plans to add six new gas tanks at the Guanyin Terminal to secure an additional 10 days’ worth of storage capacity.

Given these developments, Daishin Securities anticipates benefits across the entire LNG value chain. Researcher Park stated, "Once the construction of new LNG export terminals and import infrastructure gets underway, plant equipment companies specializing in piping and fittings (Taekwang, Sung Kwang Bend), as well as valves (Hy-Lok Korea), will see early benefits."

He added, "At the same time, as non-Hormuz routes expand, demand for LNG carriers is expected to rise, which will structurally benefit the shipbuilding (Samsung Heavy Industries, Hyundai Heavy Industries) and cryogenic insulation material (Korea Carbon, Dongsung FineTec) value chains. Additionally, the expansion of floating LNG production facilities (FLNG) and LNG storage tank capacity is expected to proceed in tandem."

This content was produced with the assistance of AI translation services.