Focusing only on crude oil? The US-Iran conflict "severely damages" the world's largest LNG facility, and high prices may persist for years

What is the impact of the Iran-U.S. war on the world’s largest LNG facility?

Financial Associated Press, March 19 (Editor: Huang Junzhi) Qatar Energy Company, the absolute giant in global liquefied natural gas exports, reported that multiple attacks by Iran have led to “widespread damage” at the world’s largest liquefied natural gas (LNG) facility, prompting gas traders to be on high alert and prepare for market turmoil.

Ras Laffan Industrial City covers an area of 295 square kilometers (114 square miles), about one-third the size of New York City. In addition to LNG processing, it also has other gas-related facilities, including gas-to-liquids plants, LNG storage facilities, condensate separators, and refineries.

It is reported that Ras Laffan, as the core hub of Qatar Energy Company, typically accounts for about one-fifth of the total global LNG supply, with exports primarily directed to European and Asian markets.

Although gas shipments from the plant were already suspended earlier this month due to the war, the latest attacks may keep natural gas prices in Europe and Asia elevated for a longer period.

MST Marquee energy analyst Saul Kavonic stated, “A successful attack on Ras Laffan could lead to a long-term global gas shortage. This is significant because even if the war ends, the impact of supply disruptions may last for months or even years due to the need for repairs and procurement of replacement parts.”

The closure of the Ras Laffan LNG export facility is rapidly exacerbating supply tightness in the global liquefied natural gas market, which had previously anticipated a supply surplus this year with the initiation of new projects.

Since the outbreak of the Iran-U.S. war at the end of last month, European natural gas futures prices have risen by more than 70%, while Asian liquefied natural gas futures prices have skyrocketed by 88%. As a major exporting country, U.S. natural gas futures are typically not affected by global price fluctuations, but during early trading on Thursday, U.S. natural gas futures prices also rose by 6.3%.

Given that the plant has already been shut down, its impact may ripple through the entire futures curve. Traders indicated that recent natural gas contract prices have been rising, but prolonged outages will put upward pressure on prices this summer, winter, and even into next year.

Tom Mazerik, head of European gas and LNG research at Wood Mackenzie, stated, “Retaliatory attacks on Ras Laffan are precisely the scenario that worries the global gas market the most.”

He emphasized that even though the facility had been shut down, gas futures would still be significantly supported when trading opened on Thursday, with the impact evenly distributed across multiple long-term contracts rather than being concentrated solely on near-month contracts.

Additionally, analysts pointed out that this would threaten supplies to emerging countries with funding shortages, such as India and Bangladesh, and could lead to a slowdown in industrial activities and rising utility costs from the UK to Japan.

(Financial Associated Press, Huang Junzhi)