"Like doomsday," Qatar's liquefied natural gas facilities are damaged, "disrupting" the energy supply chain.

► Observer Network Chen Sijia

The military conflict between the United States and Iran has affected multiple Gulf countries, causing a massive impact on global energy markets. Qatar’s Ras Laffan Industrial City hosts several facilities, including the world’s largest liquefied natural gas plant, with liquefied natural gas production capacity accounting for about one-fifth of global supply. However, the war has damaged multiple production lines, halting production.

According to a March 19 report by Bloomberg, the ongoing conflict in the Middle East, lasting three weeks, has “disrupted” the global energy supply chain, putting most economies at risk of rising energy prices. With almost no spare capacity, a lack of substantial strategic reserves, and difficulty in finding alternative sources, interruptions in Qatar’s liquefied natural gas supply are likely to become one of the most challenging issues in this crisis.

Today, South Asian and Southeast Asian economies, which heavily rely on liquefied natural gas supplies from the Middle East, are facing energy supply shortages, while Europe, having just endured a harsh winter, is eager to replenish its natural gas stocks. Analysts say the global liquefied natural gas market appears to be facing a “doomsday scenario,” and even if the war ends, the impact on energy markets may last for months or even years.

March 2, Qatar Ras Laffan Industrial City

IC photo

The Financial Times points out that with the conflict ongoing and energy infrastructure still at risk of attack, Qatar is unlikely to begin repairs and restore production. Liquefied natural gas experts assert that regardless of when the conflict ends, Qatar will not be able to resume normal production within a few weeks, stating, “The coming months will be a nightmare for gas importers.”

Supply Hub Paralyzed

Qatar’s Minister of State for Energy Affairs and CEO of QatarEnergy, Saad Sherida Al-Kaabi, revealed on the 19th that attacks initiated by Iran have caused 17% of Qatar’s liquefied natural gas export capacity to become paralyzed, which is expected to result in a revenue loss of $20 billion per year and threaten energy supplies to Europe and Asia.

He stated that out of the 14 liquefied natural gas production lines currently in operation in Qatar, 2 have been damaged, and 1 out of 2 gas-to-liquid facilities has also been destroyed. Due to the need for repairs, this portion, equivalent to an annual supply of 12.8 million tons of liquefied natural gas, will be forced to shut down, with the downtime expected to last from three to five years.

Bloomberg points out that this means most economies will face rising energy prices. Emerging countries that rely on liquefied natural gas imports will encounter a second “gas disaster” since the outbreak of the Russia-Ukraine conflict, which could destroy industrial demand and even cause irreversible damage.

Qatar Ras Laffan Industrial City Attacked

The Daily Telegraph

Natural gas must be cooled to minus 160°C to be liquefied, and for economic reasons, QatarEnergy typically maintains a liquefied natural gas reserve inventory of only 5 days’ production. The design of liquefied natural gas carriers, liquefaction equipment, and terminals is also geared towards the continuous and high-load transportation of this energy, and restarting requires time.

Therefore, unlike oil, most countries do not yet have substantial “strategic reserves” for liquefied natural gas.

Energy analyst Shaul Kavonic from financial research firm MST Marquee stated, “We are now on the path to a gas ‘doomsday crisis.’ Even if the war ends, interruptions in liquefied natural gas supply may persist for months or even years, depending on the time required for repairs.”

Annie-Sophie Corbeau, an expert at Columbia University’s Center on Global Energy Policy, described this as a “doomsday scenario,” saying, “I wake up in the morning thinking, ‘No, not like this.’ For me, this is a nightmare scenario, a doomsday scenario, the least desirable outcome.”

South Asia and Southeast Asia Hit Hard

Toby Copson, chief economist for China investments at Davenport Energy, pointed out that South Asian and Southeast Asian countries are particularly severely affected. For instance, about 99% of Pakistan’s liquefied natural gas imports come from Qatar, and officials have warned that starting in mid-April, gas supplies may not meet electricity demand. Pakistan’s important economic pillar, the textile industry, will face heavy blows.

Emerging economies in South Asia and Southeast Asia have purchased large amounts of liquefied natural gas from the Middle East, with about four-fifths of Qatar’s liquefied natural gas exported to these countries. As Qatar’s liquefied natural gas production comes to a standstill, these countries will face energy shortages.

March 13, New Delhi, India, people waiting in line at a gas company to refill liquefied petroleum gas cylinders

IC photo

Bloomberg notes that this market shock will almost certainly lead emerging economies to reconsider their liquefied natural gas expansion plans. Today, the cost of a shipment of liquefied natural gas to Asia is about $80 million, more than double the cost before the outbreak of the war. Vietnam and the Philippines have largely suspended purchases, Indian companies are forced to pay high costs, and Pakistan is accelerating efforts to reduce dependence.

Europe’s Insufficient Reserves

After the outbreak of the Russia-Ukraine conflict, the European Union began pushing for diversification of energy supplies to reduce dependence on Russian oil and gas. However, the measures taken by the EU are still insufficient to withstand “historic shocks” such as the closure of the Strait of Hormuz and continued supply disruptions from Qatar.

Francesco Blanch, head of global commodities and derivatives research at Bank of America, stated that after a cold winter, Europe’s natural gas inventories are at very low levels. In the next two to three months, how to replenish natural gas inventories will put pressure on European countries, “Ultimately, we will have to ration more due to insufficient natural gas reserves.”

Based on past experience, to alleviate energy supply pressure, Europe typically reduces the reliance of sectors such as chemical companies and large factories on natural gas. According to a report submitted by Roland Berger Consulting to the European Chemical Industry Council, since the outbreak of the Russia-Ukraine conflict in 2022, the number of such plants shut down has surged sixfold, with investment in related industries dropping by over 80%.

The Financial Times reported that European natural gas prices have risen by 30%. A trader stated that European natural gas prices are expected to continue rising until 2027. As Asian buyers rush to purchase more liquefied natural gas from the United States, the process of replenishing natural gas stocks in Europe this summer will face greater pressure.

China Faces Pressure but Has Buffer Space

China is one of the main buyers of oil and gas products from the Middle East. Data from Columbia University’s Center on Global Energy Policy (CGEP) shows that by 2025, over 40% of China’s crude oil imports and nearly one-third of its liquefied natural gas imports will come from the Middle East.

QatarEnergy CEO Al-Kaabi told Reuters that for long-term liquefied natural gas supply contracts with Italy, Belgium, South Korea, and China, the company may have to declare “force majeure,” which could last for up to five years.

Al-Kaabi said, “What I mean is that for these long-term contracts, we have to declare ‘force majeure.’ Previously, we announced it once, but that was only for shorter-term supplies, and this time, the applicable period of ‘force majeure’ will depend on the actual time required for repairs.”

However, Bloomberg points out that, compared to Europe, China has consistently maintained close economic ties with Russia, which has steadily supplied liquefied natural gas to China, and both countries are committed to advancing the construction of the China-Russia gas pipeline. Meanwhile, China has also been working to diversify its energy supply, making more preparations in advance.

According to The Guardian, Mikhail Medan, director of China energy research at the Oxford Institute for Energy Studies, pointed out in a recent report that China’s energy system has a “strong buffer”: from vast oil and liquefied natural gas reserves to robust domestic supply, as well as diverse alternative energy sources such as wind and solar power, forming a solid defense.

The New York Times also noted that China has invested hundreds of billions of dollars over decades in developing electric vehicles and renewable energy, and this long-term strategy is now bearing fruit, stating, “China has two trump cards: electric vehicles and renewable energy.”

Medan lamented that compared to other countries, China has a certain buffer space, saying, “Looking at everything China has done, few countries can match its way of hedging risks; its power system is relatively resilient to these shocks.”

Other Liquefied Natural Gas Producing Countries as “Winners”

As turmoil engulfs the Gulf region, liquefied natural gas-exporting countries in other regions may benefit more, including the United States and Australia. These countries will be seen as safer sources of supply, receiving more orders. Their main challenge is whether they can ramp up production in a short time to meet the demands of new customers.

U.S. officials claim that some Asian economies have already begun contacting the U.S. to seek to purchase more liquefied natural gas. MST Marquee analyst Kavonic believes, “The global gas crisis could increase U.S. export revenues and drive more gas-dependent manufacturing and jobs into the U.S.”

Bloomberg notes that another “winner” is Russia, as its liquefied natural gas exports to China are expected to grow.

Corbeau from Columbia University’s Center on Global Energy Policy stated that although some U.S. gas projects are about to come online, there are no “politically less complicated alternatives” to fill the gap left by Qatari gas. She revealed that some Western politicians have begun calling for a relaxation of restrictions on Russian gas.

Additionally, as Europe and Asia compete for liquefied natural gas supplies, analysts believe there may be a “price war” between the Atlantic and Pacific markets, providing trading opportunities for merchants. Insiders say that while supplies for Europe in the coming month are relatively sufficient, if the Middle Eastern conflict continues for an extended period, Asian economies may outbid for gas spot prices.

“Normal production cannot be restored within weeks”

When Qatar’s liquefied natural gas production will resume remains unknown. The Financial Times points out that the specialized equipment for liquefied natural gas production is extremely complex, and repairs and replacements are very labor-intensive. Qatar will only initiate related work when it is certain that workers can safely enter the site without the worry of further attacks.

Tom Mazerek-Mancer, a liquefied natural gas expert from energy consulting firm Wood Mackenzie, stated, “We can immediately conclude that regardless of when the conflict ends, Qatar will not be able to resume normal production within a few weeks.” He added that Qatar originally planned to expand Ras Laffan Industrial City this year and next, but those plans are likely to be postponed.

Clean energy investor Laurent Segalen bluntly stated, “This is the end of the world. The coming months will be a nightmare for gas importers.”

On the 19th, the Iranian Islamic Revolutionary Guard Corps stated in a statement that Iran’s retaliatory actions aim to strike at energy facilities “related to U.S. interests and owned by U.S. shareholders.” Iran originally did not wish to expand the war into the energy sector nor affect the economies of neighboring countries, but provocations from the enemy have led the war into a “new phase.”

The Revolutionary Guard stated, “We warn again that attacking Iranian energy infrastructure is a grave mistake, and we are taking countermeasures. If such attacks occur again, we will launch further attacks on your and your allies’ energy infrastructure until they are completely destroyed.”