Iran’s de facto closure of the Strait of Hormuz and partial destruction of Qatar’s liquified natural gas (LNG) infrastructure on March 18 will have a dramatic global impact, primarily in East Asia, but won’t affect North American natural gas prices, market analysts say.
“The price of natural gas in the United States has not been affected because the [domestic] market is ‘shielded’ from international price spikes,” said Ken Medlock, an energy market researcher at Rice University’s Baker Institute for Public Policy.
In fact, natural gas prices in the United States and Canada are expected to decline as winter fades, he told The Epoch Times.
The United States is the world’s largest LNG exporter, eclipsing Qatar and Australia in 2022, with domestic producers now supplying 25 percent of global consumption, data from the U.S. Energy Information Administration show.
Nearly 70 percent is shipped to buyers in Europe, with Japanese and South Korean consumers increasing imports over the past few years.
Qatar is the world’s second-largest LNG exporter, supplying nearly 20 percent of global demand. About 90 percent of Qatari LNG is purchased by buyers in Asia, including China, South Korea, Japan, India, and Pakistan.
Iranian attacks since March 4 had already knocked out 17 percent of the Gulf state’s LNG export capacity before the March 18 missile strike caused massive damage to the Ras Laffan Industrial City Pearl GTL (gas-to-liquids) plant and destroyed at least two of 14 “trains,” sequential components that purify and cool natural gas to turn it into liquid for transport.
QatarEnergy CEO Saad al-Kaabi said on March 19 that the damage will take years to repair, prompting the company to declare “force majeure” on contracts for up to five years. Force majeure means an unexpected event, such as a war, a natural disaster, or a government action that prevents the fulfillment of a contract.
Alex Munton, director of the Washington-based Rapidan Energy Group Global Gas and LNG Service, told The Epoch Times that the five-year estimate implies infrastructure must be rebuilt rather than repaired, meaning that even when shipping traffic resumes in the Strait of Hormuz, LNG volume leaving the Persian Gulf will be but a dribble of what it was in February for at least several years.
The shock is comparable in some respects to the daily loss of 10 million barrels of crude oil hemmed inside the Persian Gulf by the closure of the strait—25 percent of global consumption—but “there are differences” in LNG and petroleum markets, he said.
“With crude oil, you have a global market and a global price. With gas, you don’t because markets are, to a greater extent, regionalized,” Munton said.
“The best example is [LNG] prices haven’t really budged in the United States. They’re still pretty weak, in the $3 per MMBtu [1 million British thermal units] range, but internationally, they’ve spiked. That’s a reflection of the differences.”
Medlock said, “This may seem counterintuitive, but since the United States is a net exporter of natural gas, the only way events in the Persian Gulf can impact price in the United States is by rapidly increasing demand for U.S. LNG exports.”
Peter Hartley, a Baker Institute for Public Policy researcher specializing in the economic and regulatory impacts of LNG exports, said infrastructure diversity will also determine which economies will be most damaged by the loss of Qatari LNG.
Nations without pipeline networks linked to natural gas fields—that instead invested billions of dollars in LNG import terminals that will be largely idle for the foreseeable future—will be most affected, he said.
“Anyone who is an importer is now feeling the pain in higher prices,” Hartley told The Epoch Times.
“But for countries that don’t import gas, and there are lots of them—the United States is one—the fallout will be less significant. That’s where [LNG] is different from oil, because the oil price finds its equilibrium globally.”
Americans may not see higher natural gas prices, but the loss of Qatari LNG will make it more expensive to produce goods in East Asian manufacturing hubs, which will eventually manifest in higher costs for some consumer products, Hartley said.
—John Haughey; Stacy Robinson
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