In a development that reflects the expansion of the effects of war beyond military borders, global energy markets are witnessing unprecedented turmoil. LNG, which was considered a “safety valve” for the global economy, has turned into a direct arena of conflict.
According to a report published in the Wall Street Journal, Iranian strikes caused damage to the Ras Laffan facility in Qatar, which is among the largest liquefied natural gas production terminals in the world. As a result, the facility lost about 17% of its production capacity, with restoration expected to take up to 5 years, in addition to a delay in the Gulf state’s major expansion plans.
In a move that reflects the severity of the crisis, Qatar Energy declared “force majeure” on a number of gas supply contracts, which included customers in China, South Korea, Italy and Belgium, clearly indicating disruption to global supply chains.
At the same time, the Strait of Hormuz, through which nearly a fifth of global liquefied natural gas trade passes, is witnessing a state of near complete paralysis. This has led to a decline in market confidence in supplies coming from the Gulf, and increased fears of a long-term crisis.
The report explains that the effects of this crisis may be deeper than those affecting the oil market, due to the lack of a global strategic gas reserve that can be relied upon in emergency situations, unlike what is available in the oil market. In addition, gas liquefaction facilities are complex engineering projects that take years to build and years longer to repair.
In this regard, Adi Imsirovic, a former energy trading official and lecturer at Oxford University, said: “Even if the war ended overnight, the gas market would take much longer to return to normal compared to oil… The ripple effects are huge.”
Estimates warn that the gas crisis could push rich countries into a new wave of inflation, while developing countries may be forced to ration energy consumption and close factories, which also threatens global agricultural production due to the dependence of fertilizers on gas, in addition to a potential impact on the semiconductor industry due to helium shortages.
In light of this situation, the gas market has begun to turn into a global auction arena, as gas tankers change their routes in search of higher prices, with competition intensifying between Europe and Asia for alternative supplies from the United States and Australia.
Kpler data shows that 11 gas tankers en route to Europe have changed their route to Asia since March 3, while the “La Seine” tanker changed its destination during the trip from France to Asia due to the difference in prices.
Asia is particularly affected by this crisis, as China is the largest importer of Qatari gas, with a share of nearly a quarter, while India imports about 10%. As for developing countries on the continent, they face the risk of exiting the market as a result of rising prices, as Pakistan warned that its imports would run out by mid-April, with spot prices rising to about $24 per million thermal units, compared to $9 in Qatari contracts.
Bangladesh has also been forced to reduce the use of air conditioners and close universities due to supply shortages.
In addition to the current crisis, a future crisis looms on the horizon, as plans to expand Qatar’s “North” field were likely to flood the markets with new supplies starting this year, but the current damage may delay these projects for up to a year, while repairing the Ras Laffan facility may take up to 5 years.
According to Eurasia Group estimates, “The global gas market, which was expected to witness a surplus and falling prices, is now heading towards a shortage and a sharp rise in prices.”
Although the United States, as the largest exporter of liquefied natural gas, may benefit from this crisis, it will take years to expand its export capabilities, while officials warn that high prices may lead to a decline in demand and a global economic slowdown.
The report indicates that the nature of the liquefied gas infrastructure makes it more sensitive compared to oil, as any damage, even if minor, may lead to a major disruption that is difficult to repair quickly, given the complexity of the processes and technologies used.
In conclusion, these developments reveal that the war in Iran is no longer just a military confrontation, but has turned into a global energy crisis that threatens to reshape the balance of markets, amid fears that the world is entering a long period of instability in gas supplies and prices.
