Qatar LNG production halt shocks global supply; Morgan Stanley: 2026 natural gas surplus may be "wiped out"

Qatar’s liquefied natural gas (LNG) facilities were forced to shut down after a drone attack, one of the most significant unplanned supply disruptions in history, reshaping the global natural gas market structure. Morgan Stanley warns that this shutdown will eliminate most of the previously forecasted supply surplus for 2026, and if it lasts more than a month, the market will rapidly shift into supply shortage.

On March 9, according to a Bloomberg report, Morgan Stanley analysts Devin McDermott and others pointed out in a research note on March 8 that if Qatar’s path to restoring production remains unclear in the next week or so, LNG prices could quickly surge to $30 per million British thermal units or higher.

The report says Qatar’s Energy Minister has told the Financial Times that it could take weeks or even months to restart Ras Laffan, the world’s largest LNG plant, and resume deliveries.

Qatar’s LNG shutdown has triggered violent market turmoil. According to a WallstreetCN article, European natural gas prices jumped over 60% in two trading days, marking the most dramatic price swing since the 2022 energy crisis. The options market also reflects heightened caution, with implied volatility in European benchmark futures rising to the highest level since the summer of 2023, showing an overall bullish market sentiment.

Unprecedented Shutdown Scale Overturns Surplus Forecasts

The report says Morgan Stanley had previously forecast, before the Iran war broke out, that with new projects in the US and other regions coming online, the roughly 420 million tons/year global LNG market would face a maximum supply surplus of 6 million tons in 2026. However, this shutdown has rendered almost all those forecasts obsolete.

Morgan Stanley has also postponed the forecast for the first cargoes from Qatar’s North Field expansion project to the first quarter of 2027, further cutting about 1 million tons from this year’s supply forecast.

Facilities under Qatar Energy account for about one-fifth of global LNG supply. According to a WallstreetCN article, the company recently announced in a statement that the Ras Laffan facility stopped LNG production after being attacked by a drone—a drone struck a water tank at a power plant in the facility and the Ras Laffan Energy facility.

However, the complexity of the supply disruption goes beyond damage to the facility itself. The widening Middle East conflict has actually blocked the Strait of Hormuz since last weekend—this is the necessary shipping lane for Qatar LNG, making the timeline for supply restoration even more unpredictable.

According to Bloomberg, after last week’s unprecedented shutdown, the Qatar Ras Laffan facility appears intact, but restarting operations and deliveries will still take considerable time.

Asian Buyers Rush to Secure Supply, Europe Faces Inventory Pressure

Since Qatar’s LNG mainly flows to the Asian market, this supply disruption has triggered panic buying in the Asia-Pacific region first. According to a WallstreetCN article, South Korea has already sought alternative sources to ensure supply for key power fuel needs, and some buyers have requested early delivery of LNG cargoes to fill the current demand gap.

Ross Wyeno, S&P Global Energy’s head of short-term LNG analysis, stated: "In the next few days, the market will experience significant price swings. Market participants are evaluating the impact of lost output on their own supply portfolios. Asia-Pacific buyers may be the most active in recent spot purchases."

Goldman Sachs analyst Samantha Dart and others also pointed out that since most Qatari LNG is destined for Asia, spot prices in Asia are expected to rise more sharply than in Europe.

Notably, the impact of this shutdown on Europe is not only reflected in prices, but more directly damages the economic logic of summer stockpiling. Europe is currently nearing the end of winter, gas inventories are substantially depleted, and there are serious concerns over whether the upcoming summer restocking season can be completed smoothly.

European summer gas contract prices have already risen significantly above subsequent winter contracts, stripping gas storage arbitrage of its appeal and making the outlook for restocking even more complex.

Huibert Vigeveno, CEO of Switzerland-based MET Group, said: "Supply security could once again become a tough challenge for Europe."

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