What the Qatar Conflict Means for the LNG Market
By Richard Murphy, Product Manager
The steps to isolate Qatar by Saudi Arabia, Egypt, the United Arab Emirates and Bahrain have come as a surprise to most of the world. Though oil prices have trended downward and natural gas prices have only edged higher, the impact could become more pronounced quickly if the current situation isn’t resolved in short order.
At the moment, the business community assumes that because Qatar is important to the U.S. military’s Middle East operations, the dispute won’t linger and deepen. However, if it does continue, then major disruptions theoretically could occur to the worldwide liquefied natural gas market, as well as to the local Gulf States natural gas markets. Qatar is the world’s largest LNG exporter, handling nearly one-third of the world’s total supply. It also provides an enormous amount of natural gas to the UAE and significant amounts to other nearby countries.
Meanwhile, the discord may have additional impacts to consider. Food supplies in Qatar could dwindle quickly, while at the same time, outside nations are moving to limit the number of workers they have in the country. If the crisis lengthens, LNG exports will almost surely be hurt by an exodus of personnel critical to operating Qatar’s LNG infrastructure. This, in turn, may cause the large consumers of Qatari LNG, including Japan, to find alternative sources of LNG. Should that come to pass, it would drive up LNG prices worldwide and present significant logistical challenges as vessels are rerouted from their traditional routes.
If the bulk of Qatari LNG is removed from world markets for a few months, or even longer, natural gas prices in markets such as the U.S. may well rise as significant amounts of gas would need to be diverted to LNG exports. A drawn-out feud also would increase the number of LNG projects among alternative suppliers. Then, once the conflict does abate, Qatari LNG will re-enter the market, leading to oversupply and setting the stage for significant LNG and natural gas price declines.
Whether the crisis is resolved soon or extends on for months, it illustrates how energy markets can be significantly impacted by a single unforeseen event. It’s the latest reminder that energy companies should be prepared to react quickly to commodity shortages and other system shocks that cause significant price changes and logistical challenges for producers, marketers and consumers of the commodities.