Middle East Conflict Triggers Major Disruption in Global Gas Markets

Qatar Halts LNG Exports Amid Attacks and Strait of Hormuz Closure

A widening conflict in the Middle East is significantly disrupting global gas markets, leading to a force majeure declaration by QatarEnergy on LNG shipments. This follows reported attacks on its Ras Laffan facilities and disruptions to shipping through the Strait of Hormuz, a critical transit point for 20% of global LNG exports. Concerns over supply stability and potential price increases in international gas markets are now drawing comparisons to the impact of the 2022 Russia-Ukraine conflict.

Operational Impact in Qatar: Production Halted at Ras Laffan

QatarEnergy, the world's second-largest LNG exporter, has ceased production at its Ras Laffan hub, home to the world's largest LNG export complex. This drastic decision came after a reported drone attack on the facility, which some sources attribute to Iran, causing significant damage.

Ras Laffan, operating 14 LNG trains, boasts an annual production capacity of approximately 77 million metric tonnes. Initial estimates suggest damage from the incident impacts 12–13 million tonnes per annum (MTPA), representing about 17% of Qatar's total capacity. Restoration timelines are highly uncertain, ranging from several months to a projected three to five years for specific damaged production trains or full capacity.

With only about four days of storage at full production, a rapid halt to operations was necessary once exports were blocked. A full restart of the complex is estimated to take two weeks, requiring a careful, sequential restarting of LNG trains to prevent 'thermal shock' to vital cryogenic equipment.

Regional Shipping and Geopolitical Context

The Strait of Hormuz, a critical chokepoint for global energy shipments, has seen a near-halt in LNG trade, confirmed by ship-tracking data. Reports indicate Iran's Islamic Revolutionary Guard Corps (IRGC) announced the Strait's closure and issued warnings about vessel attacks. Already, at least 11 LNG tankers bound for or from Qatar have reportedly altered their routes to bypass the volatile waterway.

The wider Middle East conflict, characterized by some as a proxy struggle involving the U.S. and Israel against Iran, has escalated, particularly following the reported death of Supreme Leader Ayatollah Ali Khamenei. This has led to increased Iranian actions in the region, further complicating energy transit and security. Amid these tensions, Egyptian efforts to advance gas shipments have also been reported, following Israel's closure of some of its own gas fields.

Global Market Implications: A Looming Supply Deficit

The disruptions emanating from Qatar are projected to create a significant deficit in global gas markets for several weeks. Global LNG exports have already plummeted to a six-month low, dropping approximately 20% from the beginning of the month, mainly due to reduced shipments from both Qatar and the United Arab Emirates.

Naval activity in the Strait of Hormuz combined with the Qatari LNG production halt is driving significant price increases across global energy markets. Europe's benchmark natural gas prices (TTF) surged an additional 20% on Monday, adding to a staggering 50% weekly increase. Oil prices also reacted sharply, climbing to $100 per barrel.

Asia emerges as particularly vulnerable to the crisis, given its heavy reliance on Qatari LNG. Last year, over 80% of Qatar's LNG exports were directed to Asian buyers, with China as the largest purchaser and India second. Asian buyers are now urgently contacting suppliers to secure alternative cargo.

While shipments to both Asia and Europe traverse the Strait of Hormuz, analysts suggest Europe has comparatively lower direct exposure. However, Europe's relatively low gas storage levels mean that price outcomes will heavily depend on whether Qatari supplies are diverted primarily to Asia.

There is no immediate replacement for these substantial Qatari LNG supplies, according to researchers like Anne-Sophie Corbeau. Saul Kavonic of MST Marquee underscored the severity, stating that Qatari LNG is effectively irreplaceable, and a prolonged shutdown could trigger a gas market shock even larger than that experienced in 2022, potentially pushing gas prices back to record highs.

Future Outlook: Long-Term Concerns and Limited Alternatives

Morgan Stanley analysts now project a significant market deficit if the Qatari outage extends beyond one month, revising previous predictions of an LNG supply surplus. Qatar's Energy Minister, Saad al-Kaabi, cautioned that restoring normal energy delivery schedules would likely take "weeks to months" even after the conflict subsides. He also issued a stark warning: oil prices could skyrocket to $150 per barrel within two to three weeks if the Strait of Hormuz remains inaccessible to tankers.

The United States, while the world's largest LNG producer, has limited immediate spare export capacity, with current plants operating near full capacity (approximately 5% headroom). While major LNG export plants under construction in the U.S. Gulf Coast aim to add over 65 million tonnes per annum (mtpa) by 2030, these future increases offer no short-term relief.

Market participants largely agree that replacing lost Qatari volumes in the short term is unrealistic due to constraints elsewhere. The global gas system is proving to have less flexibility than previously assumed, with growing constraints in LNG shipping further amplifying the crisis's impact. Analysts conclude that the LNG market is rapidly shifting from an anticipated abundance to profound concerns about potential shortages and volatility, with geopolitical factors now paramount in market predictions.