Qatar Energy has suspended production of liquefied natural gas (LNG) following the drone attack, which has dampened the global LNG market.
On Monday, Iranian drones hit two sites: a water tank at a power plant in Mesayed Industrial City and a fuel facility in Ras Laffan belonging to Qatar Energy, the world’s largest LNG producer, according to Qatar’s defense ministry.
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Although no casualties have been reported, Qatar Energy has suspended production of LNG and other products at the affected sites for security reasons.
Why did Qatar Energy suspend operations?
Drone strikes hit the Ras Laffan complex, which is home to processing plants for exporting liquefied natural gas.
According to Reuters and Bloomberg News, the state-owned energy company was forced to declare so-called force majeure, when the company is freed from contractual obligations in exceptional circumstances, such as a drone attack.
It comes at a time of intensifying naval battles between Iran and the United States, as well as missiles flying over the region, effectively choking off the strategic trade route, the Strait of Hormuz. At least 150 ships, including LNG carriers, have dropped anchor in the strait and surrounding areas, according to Reuters.
Traffic in the strait for both LNG and oil is down 86 percent, with about 700 vessels sitting idle on both sides of the route, according to the Anadolu news agency.
How will this affect the broader global LNG market?
Qatar’s LNG exports represent 20 percent of the global market. With fewer products coming to market, LNG supply is reduced, leading to higher prices.
“Of course there will be an overnight escalation with pressure on energy infrastructure in the Gulf,” said Rachel Zimba, senior fellow at the think tank New American Security Center.
Countries that directly affect Asian markets, especially Bangladesh, India and Pakistan.
Although China is the world’s largest importer of natural gas, it imports 34 percent of its imports from Australia, according to the US Energy Information Administration.
Maksim Sonin, an energy expert at Stanford University on future fuels, said, however, that QatarEnergy’s decision would bring “volatility” to energy markets, but he would not yet describe the situation as a “crisis”.
“We see near-term volatility in the LNG market, especially if infrastructure in Qatar and other hubs is damaged,” Sonin told Al Jazeera. However, “I don’t expect a repeat of the 2022 gas crisis in Europe,” he said, referring to the period after Russia’s full-scale invasion of Ukraine, when many European countries tried to dramatically scale back their dependence on Russian oil and gas.
Who is the world’s largest LNG exporter?
Until 2022, Russia was the world’s largest exporter of LNG, but its sales have fallen since the war against Ukraine began.
Now, the US is the world’s largest exporter of LNG, followed by Qatar and Australia.
Will it add pressure on Europe?
While 82 percent of QatarEnergy’s sales are to Asian countries, the shutdown will put more pressure on other markets around the world, particularly in Europe.
Consequently, a smaller supply of gas is needed to meet the same global demand. As a result, gas prices have already started to soar: Benchmark Dutch and British wholesale gas prices soared about 50 percent, while benchmark Asian LNG prices jumped about 39 percent, Monday after Qatar Energy’s announcement.
“It’s not good if Qatar is offline for a long time,” Zimba said. Europe’s only silver lining: “At least the worst of winter in Europe may be behind us,” 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 spokesman told Reuters on Monday. This group consists of representatives of member state governments. It monitors gas procurement and security of supply in the EU and coordinates response measures during crises.
(tags to translate)Economy
