QatarEnergy has suspended liquefied natural gas (LNG) production following a drone attack, straining the global LNG market.
On Monday, Iranian drones struck two sites, according to Qatar’s Ministry of Defence: a water tank at a power plant in Mesaieed Industrial City and an energy facility in Ras Laffan belonging to QatarEnergy, the world’s largest LNG producer.
Recommended Stories
list of 4 itemsend of list
While no casualties were reported, QatarEnergy suspended the production of LNG and other products at the impacted sites for security reasons.
Why did QatarEnergy suspend operations?
The drone attacks hit the Ras Laffan complex, which is home to processing units for liquefied natural gas set to be exported.
The state-owned energy company was forced to declare what is known as force majeure, when a company is freed from contractual obligations in the event of extraordinary circumstances, such as a drone attack, according to Reuters and Bloomberg News, citing people familiar with the matter.
This comes at a time when intensifying sea battles between Iran and the United States, coupled with missiles flying over the region, have effectively choked the Strait of Hormuz, a strategic trade route. At least 150 vessels have dropped anchor, including those carrying LNG, in the strait and surrounding areas, according to Reuters.
Traffic in the strait for both LNG and oil has declined by 86 percent, with roughly 700 ships sitting idle on either side of the passage, according to the Anadolu news agency.
How will this impact the broader global LNG market?
Qatar’s LNG exports represent 20 percent of the global market. With fewer products reaching the market, LNG supply is down, causing prices to surge.
“Definitely an escalation overnight with pressure on energy infra in the Gulf,” said Rachel Ziemba, a senior fellow at the Center for a New American Security, a think tank.
The countries hit the most directly are Asian markets, particularly Bangladesh, India, and Pakistan.
China is the world’s largest importer of natural gas, but it gets the majority of its imports from Australia, accounting for 34 percent of its imports, according to the US Energy Information Administration.
Maksim Sonin, an energy expert at Stanford University’s Center for Fuels of the Future, however, said that while QatarEnergy’s decision would bring “volatility” to energy markets, he wouldn’t describe the situation as a “crisis” just yet.
“We will see near-term volatility in the LNG market, especially if infrastructure in Qatar and other hubs is damaged,” Sonin told Al Jazeera. However, he added, “I do not expect the 2022 gas crisis to repeat in Europe,” referring to the period following Russia’s full-fledged invasion of Ukraine, when many European nations tried to dramatically scale back their dependence on Russian oil and gas.
Which are the world’s largest LNG exporters?
Until 2022, Russia was the world’s biggest exporter of LNG, but its sales have plummeted since its war on Ukraine began.
Now, the US is the world’s largest exporter of LNG, followed by Qatar and Australia.
Will this add pressure on Europe?
While 82 percent of QatarEnergy’s sales are to Asian countries, the halt puts increased pressure on other markets across the globe, too, particularly in Europe.
In effect, a smaller supply of gas will need to meet the same global demand. As a result, gas prices have already started soaring: Benchmark Dutch and British wholesale gas prices soared by almost 50 percent, while benchmark Asian LNG prices jumped almost 39 percent, on Monday after the QatarEnergy announcement.
“Not good if Qatar stays offline for long, of course,” said Ziemba. The only silver lining for Europe: “At least the worst of the winter in Europe may be behind,” Ziemba pointed out.
The European Union’s gas coordination group will meet on Wednesday to assess the impact of the widening conflict in the Middle East, a European Commission spokesperson told Reuters on Monday. The group includes representatives from member state governments. It monitors gas storage and security of supply in the EU, and coordinates response measures during crises.