The fragility of the LNG market far exceeds that of oil! Energy experts: Even if the Strait of Hormuz reopens, it will take several weeks for Qatari LNG production to resume.

With the Middle East conflict leading to a near standstill in shipping through the Strait of Hormuz, oil prices have surged. However, in the longer term, the closure of the Strait of Hormuz may have a more severe impact on the liquefied natural gas (LNG) market, partly because LNG transportation is more difficult than oil transportation, and LNG production is more concentrated. It is reported that around 20% of global LNG needs to be transported through the Strait of Hormuz, with most of it coming from exports from Qatar. After the drone attacks by Iran, the country halted production last week, leading to a surge in global natural gas prices. European natural gas prices rose by 63% last week, marking the largest weekly increase since March 2022, when the Russia-Ukraine conflict triggered similar market fluctuations. Asian natural gas prices are even higher - reaching $23.40 per million British thermal units (MMBtu) in early Monday trading - as most of Qatar's LNG originally flows towards the Asian market. Asian countries are striving to compensate for lost supplies, and with the widening price gap between Europe and Asia for natural gas, some LNG vessels that were originally heading to Europe have now turned towards Asia. Some oil from Saudi Arabia and the UAE has been redirected through pipelines, but there is not the same infrastructure for natural gas. In other words, long-distance natural gas transportation relies on ships. Additionally, while many countries in the Middle East produce oil, natural gas production is highly concentrated in Qatar's industrial complex, Ras Laffan, making the market more vulnerable to shocks in the future. Alex Munton, director of global natural gas and LNG research at energy consulting firm Rapidan Energy, stated that the real risk is that once the Strait of Hormuz resumes navigation, restarting LNG production in Ras Laffan, Qatar, will be very difficult. Due to the fact that liquefying natural gas is inherently a complex industrial process, the time required for resuming production will be much longer than restarting oil production. Rapidan Energy anticipates that LNG exports from the region will not resume until it is certain that ships can safely pass through the Strait of Hormuz. Insurance issues are one factor - the value of an LNG shipping vessel can reach $250 million. Furthermore, due to the complexity of the production process, operations cannot be stopped or restarted at will based on short-term developments. The organization stated that full production recovery will take weeks, not days. Additionally, the plant has never been completely shut down before. Alex Munton said: "I think in the first few days of this conflict - it's only been a week so far - the market hasn't fully realized how long Qatar's shutdown might last and how much of an impact it will have on global supply and markets." The United States is currently the largest LNG exporter in the world, but its production is already operating at full capacity. With almost no additional capacity globally, the market may ultimately need to rebalance through demand destruction, such as switching to relatively cheaper coal instead of natural gas. However, Alex Munton pointed out that if the conflict escalates further, including more attacks on Qatar's LNG infrastructure, it could lead to more serious long-term impacts. Rapidan Energy believes that Iran's previous attack on Ras Laffan was just a "warning shot" and not a real massive strike. When discussing the industrial complex, Alex Munton stated: "It's almost like a sitting duck. If Iran wants to do significant damage to Qatar's LNG capacity, it can fully achieve it... If Iran is determined to destroy this facility, there is almost no way to fully defend against it." He added: "Middle East oil production cannot be completely shut down just because one point is destroyed, because there are too many oil fields, too many countries, too many facilities... But LNG is different, it has only one facility. Although it is large in scale, it is still just one facility."