The Ras Laffan reckoning: the reshuffling of the global LNG map

The architect of Qatar’s world-leading liquefied natural gas industry, former Energy Minister Abdullah Bin Hamad Al Attiyah, died on 27 May. He deserved a more fitting farewell than to see these billion-dollar facilities burnt and twisted by Iranian drones and missiles. Recovery will be a difficult task, less for Qatar itself than for the global LNG industry.

QatarEnergy had prided itself on never missing a delivery to customers, even through the Fukushima nuclear disaster in Japan, the COVID-19 pandemic, and Russia’s war against Ukraine. But the closure of the Strait of Hormuz following the US and Israeli attack on Iran, followed by the Iranian missile strikes on Ras Laffan on 18 March, gave it no choice. A few LNG cargoes have since escaped the Gulf, but anything close to normal operations is far off.

Upending the LNG momentum

The attacks have upended an LNG story which seemed quite clear for the next few years. A vast wave of LNG expansion was on the way, mostly from Qatar and the US. Prices would fall significantly, and sellers would have to offer better terms and fight for long-term customers. Europe would predominantly buy US LNG to cover for the phase-out of the remaining volumes of Russian gas, while Qatari LNG would mostly go to Asia.

Buyers would enjoy a competitively-priced fuel, less polluting than coal, and a valuable complement to renewables because of its flexibility. LNG demand growth was seen as strong, though it would still have to be reasonably priced to win markets in middle-income Asian countries. Methane leakage and the long-term role of gas in economies with net-zero carbon goals were important concerns.

Perhaps surprisingly, the impact of missiles on Ras Laffan has not totally changed this picture. Assuming there is no return to full-scale fighting, the loss of Qatari capacity is serious in the short term but can be made up within a year or two.

The short-term outlook

His Excellency Saad Sherida Al-Kaabi, the Minister of State for Energy Affairs, President and CEO of QatarEnergy, has said that the damaged trains, with a capacity of 12.8 million tonnes per year (MTPA), about 17% of Qatar’s total, cost $26 billion to build. The repair time could be from three to five years, given the need for long-lead items. On 26 May, Japan’s Chiyoda announced that it would resume work on Qatar’s 32 MTPA North Field East LNG expansion, costed at $28.75 billion. North Field South and North Field West were supposed to start up in 2028 and 2031, respectively, a schedule now likely to have slipped.

Prices have risen sharply, of course, with the Japan-Korea Marker (JKM) up from $10.4 per million British thermal units (MBtu) just before the war, to $18.7 over the weekend. But this is far from the dizzying levels reached during the Russia-Ukraine crisis in 2022. So far, the market has coped fairly well, with countries boosting renewables, switching back to coal, and bringing in efficiency measures.

Concerns remain over the refilling of European storage. Stocks emerged from last winter at a low point, and have to hit 70-80% by October to assure security. On the whole, this looks achievable. The emerging strong El Niño should mean warmer global weather, diminishing the risk of a cold winter where householders would burn through a lot of gas.

A burst of higher prices and buyers’ desire to diversify will advance some liquefaction projects that had appeared doubtful. The US has nearly 100 MTPA of projects awaiting a final investment decision. The resurrection of Alaska LNG, a 20 MTPA project, is the most notable. Argentina, where Abu Dhabi’s XRG signed a framework agreement in February, Browse, Australia’s largest undeveloped resource, and Abadi in Indonesia, are candidates too.

Africa should benefit. Tanzania, with major fields but plagued by years of unfavourable government policies, could move ahead. TotalEnergies and ExxonMobil will be keener to advance their northern Mozambique ventures, which have been delayed by insecurity. The significant resources offshore Senegal and Mauritania, which today host only a single 2.5 MTPA facility, could be further exploited.

Conversely, buyers will be worried about depending on LNG. Pre-war, Qatar, the US and Australia accounted between them for 60% of global LNG supply, a far greater market dominance than for OPEC+ in oil. That oligopoly should gain even more market share with the American and Qatari expansions.

Even if the Strait re-opens promptly and fully, there is always the risk it could be closed again, or liquefaction attacked. Unlike oil, LNG cannot bypass the Gulf.

Rise in overseas LNG portfolios

And the US could be an unreliable supplier in its own way, with random threats against previous friends, the wielding of tariffs and sanctions, and the possibility of export restrictions if domestic gas prices rise too much. China, in particular, cannot rely on US LNG. Even national oil companies, such as QatarEnergy and ADNOC, are expanding their overseas LNG portfolios to be able to serve customers, regardless of events in the Gulf.

Asian buyers will therefore opt for coal, either domestic or from a more diverse global supply base, despite its polluting nature. And they, along with Europe, will forge ahead more aggressively with renewables. Falling battery costs make wind and solar much more realistic options for day-round power. Gas’s role will shrink to longer-term backup for electricity generation, home heating in legacy buildings in cold climates, feedstock in heavy industries such as fertilisers and iron and steel, and shipping fuel.

So the LNG glut we expected in January is likely to be delayed, spread out, and longer and deeper. Sellers will need to work harder to attract customers, with flexibility, lower prices and greater assurance of supply security. Buyers need nerve to get through the current crisis, and then cashing in. It is a strategic challenge Al Attiyah would have relished.

• Robin M. Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis