Qatar LNG Repairs To Take Up To Five Years, Cost $20 Billion In Lost Revenue, Cripple Chinese Supply

Bad news for Europe and Asia, and especially China which is one of the Gulf's biggest LNG clients: according to QatarEnergy’s CEO, Iran’s latest attack on Qatar damaged facilities that produce about 17% of its liquefied natural gas export capacity. Worse, repairs will take three to five years and sideline 12.8 million tons per year of LNG, CEO Saad al-Kaabi told Reuters. Two of the plant’s 14 production trains were damaged, with repairs expected to take years, people with knowledge confirmed to Bloomberg. 

The outage will cost an estimated $20 billion in lost annual revenue for the Gulf state, and threatens long-term supplies to Europe and Asia, al-Kaabi told Reuters, reiterating that hostilities will need to end for production - which was already shut in ahead of the attack - to resume. In addition to the two trains, one of two gas-to-liquids facilities was also damaged.

As a result of the extensive damage, QatarEnergy will have to declare force majeure on long-term contracts for as long as five years for supplies bound for some customers in Europe and Asia, al-Kaabi told Reuters. In addition, Qatar’s exports of condensate could drop by ​almost a quarter, while liquefied ⁠petroleum gas (LPG) may fall 13%.

The strike which will lead to a dramatic drop in Europe-bound LNG, sent natural gas prices soaring, with European futures rising as much as 35% Thursday to more than double their prewar levels. They eased modestly on Friday. The surge underscores the long-term inflationary risks from the conflict in the Middle East, which is now well into its third week.

QatarEnergy said earlier that several LNG facilities at Ras Laffan came under missile fire, which caused “sizable fires and extensive further damage.” The incident marked yet another escalation in hostilities in the region and follows a string of attacks targeting oil and gas infrastructure in recent days. 

The LNG plant had already halted production after a previous drone strike. But the latest attacks were more devastating, and a lengthy shutdown will leave buyers — particularly in Asia — scrambling to make up millions of tons of lost fuel.

As reported previously, before the war China imported about 80 LNG cargoes per month, on average. Of the 80 cargoes, Qatar‑origin volumes average about 20 cargoes per month. All else equal, China will now have to scramble to find alternative sources. Furthermore, unlike oil which China has 1.5 billion in strategic reserve, its LNG reserves are at best minimal in a world where as Neil Beveridge, managing director of research at Bernstein, said “there is no strategic reserve for LNG.”

And then there is the issue of the Strait blockade: Qatari-origin cargoes to China have historically been delivered primarily by Qatari-owned vessels while the Chinese fleet mainly operates in the Pacific basin, importing Australian and other Pacific volumes. Despite strong export footprints, countries like Australia, Malaysia, Indonesia, Papua New Guinea, and Brunei have not developed large LNG shipping capabilities, so China relies on its own ships for imports; redirecting these vessels to Qatar would complicate import logistics from the Pacific basin, all of which take weeks to streamline: weeks the global market which suddenly finds itself with 20% less supply does not have. 

Short-term crisis aside, what does the attack on Ras Laffam mean for long-term LNG prices and market dynamics? 

According to the latest note by JPM's commodity analyst Otar Dgebuadze, who has incorporated the latest details on physical damage at Ras Laffan, the largest US bank is reducing the normalized capacity utilization rate from 90% to 80% as the two damaged trains will take 3-5 years to repair, according to the comments by Qatar Energy CEO. It also lowers the ramp up speed and now estimates lost Qatari supply during the summer (March–October) at 36 Bcm (compared to 25 Bcm previously, and 30 Bcm this morning) if the Strait reopens in one month after the conflict, with an additional 7 Bcm/month at risk for each additional month of delay

The JPM analysts assume LNG restarts to start 30 days after potential Hormuz reopening, and expect facilities to reach 40% utilization in two weeks, and 80% in two months, which they now consider the new normal run rate for Qatar facilities in the medium term. They caution that risks to these estimates are on the downside and the actual volumes may materialize even lower.

Taking a closer look at the damage, and without going into military details, JPM notes that a single strike damaged two liquefaction trains (4 and 6), between them lies train 5 condition of which remains unknown.

The attack will reinforce QatarEnergy’s cautious approach has been in place since the force majeure. In other words, JPM notes that Qatar’s export resumption and its expansion plans will be guided by a set of logistical, safety, and strategic factors — not just operational or commercial considerations. 

The strike at Qatar’s LNG facilities follows another strike at the Pearl Gas-to-Liquids plant, located near the LNG facilities in the Ras Laffan Industrial City. In a significant escalation of the war, energy infrastructure became an open target, as Israel struck the Iranian South Pars field, followed by Iranian warnings of retaliation against a set of energy targets across GCC countries.

JPM's conclusion is that this event also reinforces the bank's belief that the market needs to reprice the oversupplied narrative. Following the delay of the first new Qatari train even before the conflict, the comments made by Qatar’s energy minister and CEO of Qatar Energy Mr. al-Kaabi in his interview with the FT on the second day of the conflict, and the unknown extent of physical damage to Ras Laffan site, Qatar’s expansion plans now face increased uncertainty.

Between this, and the slowdown in US LNG final investment decisions, JPM warns that long-term TTF prices are not fully reflecting these risks. As of close of yesterday, after 18th day of the conflict with no immediate resolution in sight and signs of more escalatory risks, TTF 2029 and 2030 calendar strips were up only by 1.2-1.7 EUR/MWh compared to pre-conflict levels, while Calendar-2027 up almost 12 EUR/MWh.

Long term prices are moving up this morning and the bank expects this to continue for the foreseeable future. 

More in the full JPM report available to pro subs.