BofA: Asia Economic Weekly - LNG Shortage Could Become an Energy Pressure Point
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Bank of America warns that beyond oil shocks, Asia faces a meaningful LNG shortage risk. Approximately 85% of LNG transiting the Strait of Hormuz heads to Asia, and with storage covering only weeks of demand, any extended closure and Qatatile production halt could trigger global repercussions.
China's February CPI surged to 1.3% year-on-year, a three-year high, while January-February exports soared 21.8%, far exceeding expectations. India's policy response remains delayed, currently focused on replenishing energy supplies with only 25 days of inventory. In Japan, rising oil prices threaten the outlook for positive real wage growth, which reached 1.4% in January. Indonesia's fiscal deficit widened to 0.53% of GDP in February.
A BofA stress test identifies technology supply chain economies as most vulnerable to an LNG shortage, given extremely low natural gas self-sufficiency rates: Japan at 2.1%, Taiwan at 0.3%, and South Korea at 0.1%. An Asian LNG shock could disrupt global technology and manufacturing supply chains through physical gas rationing to industrial users.
Central banks may adopt a wait-and-see stance in the near term. However, if oil prices persist above $100 per barrel for several quarters, inflation across most Asian economies could exceed targets, potentially forcing an earlier return to interest rate hikes. Key variables include the duration of any disruption and policy thresholds, such as Indonesia's $90 per barrel oil price mark.