Qatar Energy halts LNG production after attack, European gas prices surge 50%! Goldman Sachs: If blockade continues, prices could double

The European natural gas market has experienced its largest single-day shock since March 2022. QatarEnergy announced that its liquefied natural gas (LNG) export facility was forced to shut down due to a military attack. Coupled with continued shipping disruptions in the Strait of Hormuz, the European benchmark natural gas futures surged as much as 50%.

QatarEnergy confirmed in a statement that its integrated facility located in Ras Laffan, the world's largest LNG export base, was hit by a drone attack. A water tank at a power plant and another energy facility were damaged, prompting the company to halt LNG production.

Meanwhile, the Iran crisis continues to intensify and shipping through the Strait of Hormuz has slowed to a near standstill. Several LNG tankers originally scheduled to load cargo in Qatar and the UAE have delayed or changed their route plans. An EU spokesperson said that the EU has not yet taken emergency measures regarding gas inventories.

This shock has suddenly escalated market concerns about disruptions to global energy supplies. According to Goldman Sachs, if the Strait of Hormuz remains blocked for a month, European natural gas prices could more than double. This scenario poses a particularly acute risk for Europe, where inventories are at historically low levels and substantial LNG replenishments are needed in the summer.

The World's Largest LNG Export Base Hit

According to the latest market data, European benchmark natural gas futures have risen by more than 50%. Last month, the benchmark contract had fallen by 19% due to relatively mild weather and ample supply.

QatarEnergy stated in its announcement that after its Ras Laffan facility was attacked, the company halted LNG production. According to a statement from the Qatari Ministry of Defense, a drone struck a water tank at a power plant within the facility, and another energy facility was also attacked.

Ras Laffan is the world's largest LNG export base. Qatar had already announced a suspension of all maritime shipping, and LNG tankers scheduled to load goods in Qatar and the UAE have generally postponed or re-routed their journeys.

The Strait of Hormuz Nearly Sealed, Insurers Withdrawing Increases Risks

The trigger for this round of crisis was the US and Israel launching military strikes on Iran. Iran immediately retaliated against multiple countries, and shipping activity in the Strait of Hormuz nearly stopped right after the conflict broke out. The Strait of Hormuz is a critical global energy transport corridor, accounting for about one-fifth of the world's LNG exports.

Iran has stated it does not intend to block the Strait of Hormuz, but ships have already begun to avoid this route. According to Bloomberg, over half of the world's largest marine insurance associations will stop providing war risk coverage for ships entering the Persian Gulf starting this Thursday, which is expected to further dampen market participants’ willingness to load cargo in the region.

Trump stated in an interview with The New York Times that bombing operations against Iran will continue for four to five weeks.

Europe Faces Inventory Crunch, Summer Replenishment Under Severe Pressure

Europe is particularly vulnerable to this shock. Although the continent is approaching the end of winter and gas consumption is slowing, current inventory levels are abnormally low. The region needs to import large amounts of LNG this summer to refill stocks ahead of the next heating season.

Wood Mackenzie's Director of European Gas and LNG, Tom Marzec-Manser, said, "The next key question for traders will be how long the strait remains closed," and "the longer the closure, the higher the prices will go."

Bruegel analyst Simone Tagliapietra pointed out, "This situation could complicate storage replenishment in the coming months and place new pressure on industrial energy costs."

The Middle East Supply Chain under Full Pressure, Asian Competition Exacerbates Europe’s Dilemma

The impact of the conflict on the Middle Eastern energy supply chain is spreading in multiple directions. Last Saturday, Israel ordered the temporary closure of some gas production facilities, including the large Leviathan gas field. Major importer Egypt immediately sought to procure more LNG spot cargoes. According to analysis by BloombergNEF, disruptions in Middle Eastern gas trade may eventually boost Turkey’s demand for spot LNG, since Turkey imports piped gas from Iran.

Although the main buyers of Middle Eastern LNG are Asian countries, any supply disruptions will intensify the global scramble for alternative sources, driving up prices worldwide and making it difficult for Europe to remain unaffected.

Global Risk Management Chief Analyst Arne Lohmann Rasmussen stated, "The European gas market is actually more sensitive to the near-closure of the Strait of Hormuz than the oil market. This cut-off effect will quickly materialize in the physical market."