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What is the single most expensive site damaged in the US and Israeli war against Iran? Not a tanker, or a petroleum refinery, or an oil pipeline – but the vast liquefied natural gas complex at Ras Laffan in Qatar.
As the jets, drones and missiles for now fall silent, the global gas industry has to regroup, rebuild, and rethink its future.
Gas has endured three massive crises in the space of six years. Prices for the Japan-Korea Marker, the main Asian liquefied natural gas (LNG) index, crashed to $1.80 per million British thermal units in the depths of the Covid-19 pandemic, and leapt to $53 with Russia’s invasion of Ukraine. It then fell back to $10 just ahead of the current war, equivalent to about $60 per barrel of oil.
Up to February, the industry expected a glut, as huge new Qatari and US LNG plants were due to come online in the years up to 2030. The main story was expected to be the scramble for gas to fuel the artificial intelligence and data centre boom.
Instead, we got the Hormuz chokepoint and the Ras Laffan attacks – pushing prices up to $20 just before the April 8 ceasefire. About 20 per cent of world LNG production behind the strait is now shut-in, in Qatar and Abu Dhabi.
It will not restart until a durable security arrangement is in place. On Sunday, US President Donald Trump said the country's navy would start blockading the Strait of Hormuz. The US Central Command later confirmed that it will begin a blockade of all ships entering and leaving Iranian ports on April 13 at 10am Eastern Time (6pm UAE time).
While the next steps remain unclear, even when normal maritime transit resumes, it will take months to cool down the plants and get them operating normally. About 17 per cent of Qatar’s LNG was badly damaged in the strikes on March 18. Qatar Energy says it will take $25 billion and three to five years to fix.
The conflict has not just engulfed LNG: Abu Dhabi’s Habshan, Bu Hasa, Bab, Asab and Shah gas processing centres were struck, by debris from drone interceptions. Processing units at Iran’s giant South Pars gasfield were damaged. The export of gas-derived industrial commodities from the Gulf – fertilisers, polymers, methanol, aluminium, helium and sulphur – has also been disrupted. This will further strain Asian supply chains.
And indeed, Asia is most exposed to this crisis. Thailand is a prime example: it generates more than 60 per cent of its electricity from gas. It has become the top LNG importer in South-East Asia, and LNG will make up nearly half its consumption by 2030. And Qatar is its main supplier.
Chance to ponder
In September, Bangkok will host Gastech, the natural gas industry’s premier gathering. This presents a crucial opportunity to tackle the recovery from the crisis, or deal with its continuing impact. Then, the gas business needs to set out its vision.
Christopher Hudson, president of dmg events - the organiser of Gastech, notes three key issues: “Energy systems today are being asked to deliver security, affordability, and sustainability at the same time.” These are not contradictory, but they do not go together automatically either.
A more resilient system with greater redundancy and diversification will inevitably cost more in the short term. This will be repaid over time, with less vulnerability to these geopolitical and natural crises, which otherwise can undermine confidence in gas, and inflict repeated economic calamity.
The global gas supply market has revolved around four poles. Russia is now mostly shut out of Europe and has had to divert what it can on much longer routes to Asia, costing it money and tying it to Beijing. The Gulf is interrupted for now, and the perceived risk premium for future supplies has risen.
Australia has its own gas problems at home and is unlikely to build much new export capacity. That leaves the US, which has become the world’s leading LNG exporter. But its erratic domestic politics, bullying approach and haphazard levying of tariffs mean it cannot be relied on as a single reliable supplier.
Need for diversification
Major gas consumers will look to diversify. That means developing more local and regional gas, through pipelines as well as LNG. It will encourage exploration and expansion of new frontiers, particularly in Africa and Latin America.
Middle Eastern countries could consider more integration of their gas networks, and pipeline links to major consumers in the East Mediterranean and on to Europe.
Some countries will look again at their domestic unconventional resources, as Argentina, Australia and China are doing. Renewable hydrogen has fallen away after strong interest in the early 2020s, but it too could make a comeback as input to gas-based industries.
Gas has to be affordable. Coal prices in Asia have risen on the back of the war, but not nearly as much as for LNG. Solar and wind power with batteries are increasingly competitive. Even laggards in renewables, such as Indonesia, have vastly expanded their plans in response to the higher oil and gas prices. Meanwhile, Pakistan, very vulnerable to the surge in LNG prices in 2022, has greatly improved its resilience by deploying massive amounts of rooftop solar power.
In Asia especially, though, the power sector is not the only story for gas use. Industry, which cannot be easily fed with renewables, will be the key growth sector. Shipping is another promising area, and could gain ground as heavy fuel oil supplies dry up.
Environmental concerns might seem to have faded as the missiles fly. But climate change has not stopped: this year is likely to be among the hottest ever recorded.
Replacing gas with carbon-intensive coal is a disastrous backward step. An intelligent blend of renewables, batteries and gas offers affordable electricity with rapid reductions in emissions.
Mr Hudson believes that Bangkok will bring “progress on urgent energy priorities: mobilising investment for infrastructure and emerging energy systems; and advancing a balanced, multi-source energy mix”.
Energy security and affordability comes from a diverse mix of sources, suppliers and supply routes. Gas, always the most collaborative and connected of the major energy modes, will find its path out of this conflict.
