On March 19, Ras Laffan, the world’s largest liquefied natural gas (LNG) terminal, which supplies one-fifth of the world’s super-chilled fuel, was hit by Iranian missiles and drones.
The Qatari terminal suffered substantial damage in the strikes — fires were raging across the gas-to-liquids facility within the complex, which covers 295 square kilometres, roughly the size of a large city.
Investments worth tens, if not hundreds, of millions of dollars were destroyed. The damage was estimated to be so extensive that QatarEnergy’s CEO, Saad Sherida Al-Kaabi, said the company may have to declare a “force majeure” (non-fulfilment of orders due to circumstances outside their control) on long-term contracts.
He said this could affect LNG supplies to Italy, Belgium, Korea and China “for up to five years”.
Similar to oil, gas exports from the Persian Gulf supply about 20 per cent of global demand. However, gas (mostly methane) is very different from crude oil. To transport it in liquefied form, methane must be cooled to below -162 degrees Celsius.
At such temperatures, steel becomes brittle and can shatter. As a result, storing and transporting LNG by ship is expensive and highly energy-intensive. Liquefaction and transportation can consume up to 15 per cent of the original natural gas extracted.
This also means that the infrastructure required to handle a highly flammable and explosive fuel under such extreme conditions must be complex and, consequently, very costly. Ras Laffan, for instance, was built over decades in multiple phases, costing tens of billions of dollars.
No quick fix
Interestingly, Qatar’s North Field and Iran’s South Pars gas field are part of the same vast geological structure, separated only by a maritime border in the Persian Gulf. Together, they form the world’s largest natural gas field.
Thus, Iran and Qatar are effectively exploiting the same gas reservoir, much like two people drinking from the same bottle using separate straws. The US President, Donald Trump, now appears to have retreated from his earlier threats to destroy “the entirety” of the Iranian gas field — a claim that was always unrealistic given this shared geology.
While Qatar exports most of its production, Iran consumes the majority domestically, although some gas is exported via pipelines to Turkey and Iraq.
The damage to the Qatari complex, however, has already affected around 17 per cent of the country’s LNG infrastructure. Repairs are expected to take considerable time due to the complexity of such facilities.
The plant must be gradually warmed before repairs can begin and then slowly cooled again afterwards, as rapid temperature changes can cause pipes to warp or even break. Additionally, many components are extremely large and difficult to transport.
For example, heat exchangers can exceed 50 metres in length, while compressors, turbines and liquefaction units can weigh up to 5,000 metric tonnes. Storage tanks must also be constructed using specialised alloys, with double walls and customised insulation.
In short, gas infrastructure is far more complex than oil. Recent events have highlighted the vulnerability of LNG supplies from the Gulf region. The impact is likely to be felt most in Asia, where about three-quarters of Qatar’s LNG exports are directed — particularly to China, India, Taiwan, South Korea and Pakistan.
Most of the remaining exports go to Europe, including Italy, Belgium and Poland, with a small portion reaching the UK, which imported only about 1 per cent of its supply from Qatar last year. The bulk of the UK’s gas comes from domestic North Sea production and imports from Norway and the US.
However, LNG operates within a global energy market, and any supply shortfall is expected to drive prices higher worldwide. Gas will flow to the highest bidders, while some countries may revert to coal usage. This is particularly likely in price-sensitive nations such as India, Pakistan and Bangladesh.
Some European countries may also turn to coal as a cheaper alternative. Following the Gulf developments, the “spark spread” — the profit margin for gas-fired electricity generation — has declined, narrowing the gap with the “dark spread”, which refers to coal-based power generation.
The benchmark for European gas prices, the Dutch Title Transfer Facility, has more than doubled since mid-January. While coal prices have also risen due to increased demand, the increase has been less pronounced.
Unlike oil, where disruptions are often logistical — such as the closure of the Strait of Hormuz — the LNG shortage has now become structural. The damage to Qatar’s production facilities may take several years to repair, meaning gas prices — already elevated — are likely to remain high for the foreseeable future. (The Conversation)
