Qatar Energy halts LNG production after attack, European gas prices surge 45%! Goldman Sachs: Prices may double if blockade continues

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Europe’s natural gas market has suffered 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, combined with ongoing pressure from shipping disruptions in the Strait of Hormuz, causing the European benchmark natural gas futures to surge by up to 50%.

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

Meanwhile, the Iran crisis continues to escalate, and shipping through the Strait of Hormuz has nearly come to a halt. Several tankers scheduled to load LNG in Qatar and the UAE have delayed or changed their route plans. An EU spokesperson said that the EU has not taken any emergency measures regarding its natural gas reserves.

This shock has dramatically heightened concerns over global energy supply disruptions in the market. Goldman Sachs estimates that if the Strait of Hormuz remains blocked for a month, European natural gas prices could more than double. This situation is particularly risky for Europe, where inventories are unusually low and there is an urgent need to replenish LNG supplies over the summer.

The world’s largest LNG export hub attacked

As of the latest trading, the European benchmark natural gas futures have surged by more than 50%. Previously, due to mild weather and ample supply, the benchmark contract had fallen 19% last month.

QatarEnergy stated that after its integrated facility at Ras Laffan experienced a military strike, the company halted LNG production. According to a statement from Qatar’s Ministry of Defense, a drone hit a power plant water tank within the facility, and another energy installation was also attacked.

Ras Laffan is the world’s largest LNG export base. Qatar had previously announced the suspension of all maritime shipments, and LNG tankers originally scheduled to load cargo in Qatar and the UAE have generally been postponed or rerouted.

The Strait of Hormuz is nearly closed, insurance agencies withdraw and risks intensify

The trigger for this crisis was the military strike by the US and Israel against Iran. Iran immediately counterattacked several countries, and shipping activity in the Strait of Hormuz almost halted the moment conflict broke out. The Strait of Hormuz is a key global energy transport route, handling about one-fifth of the world’s LNG exports.

Iran stated it has no intention of blocking the Strait of Hormuz, but ships have begun avoiding the route in practice. According to Bloomberg, more than half of the world’s largest marine insurance associations will stop offering war risk coverage for ships entering the Persian Gulf starting this Thursday, which is expected to further discourage market participants from loading cargo in the Gulf.

Trump told The New York Times that the bombing campaign against Iran will continue for four to five weeks.

Europe’s inventories in crisis, summer restocking faces severe pressure

Europe is particularly vulnerable to this disruption. Although the continent is nearing the end of winter and gas consumption is slowing, current inventory levels are exceptionally low. The region needs to import large quantities of LNG this summer to restock ahead of the next heating season.

Tom Marzec-Manser, Europe gas and LNG director at Wood Mackenzie, said, "The next key question for traders will be how long the strait stays closed," "The longer the closure lasts, the higher prices will go."

Bruegel think tank analyst Simone Tagliapietra noted, "This situation could make gas restocking over the coming months more complicated and put new pressure on industrial energy costs."

The Middle East supply chain is under comprehensive pressure, Asian competition worsens Europe’s predicament

The crisis is already spreading at multiple points across the Middle East energy supply chain. Last Saturday, Israel ordered the temporary closure of several gas production facilities, including the massive Leviathan field, and major importer Egypt immediately sought to purchase more spot LNG. According to BloombergNEF, disruptions in Middle East gas trade may also increase spot LNG demand from Turkey, since Turkey imports pipeline gas from Iran.

Although Asia is the primary buyer of Middle Eastern LNG, any supply disruption will further intensify competition for alternative sources, pushing global prices higher, and Europe will not be spared.

Arne Lohmann Rasmussen, Chief Analyst at Global Risk Management, said, "Europe’s natural gas market is actually more sensitive to the effective closure of the Strait of Hormuz than the oil market. This cut-off effect will soon be seen in the physical market."

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