Qatar LNG disruption threatens global gas supplies

A foreign media report said QatarEnergy, Qatar’s state-owned energy company and a supplier of about 20% of the world’s liquefied natural gas, has declared force majeure on long-term contracts with major importers including South Korea, China, Italy and Belgium. A force majeure declaration allows a supplier to suspend contractual obligations without legal liability when performance is disrupted by events such as war or natural disasters.

Qatar recently suffered damage in Iranian missile and drone strikes, with two LNG production facilities and one gas-to-liquids plant hit in the northern industrial city of Ras Laffan. The attacks are estimated to have cut the country’s LNG export capacity by about 17%. If the declaration is formally enacted, delivery obligations would be suspended. Combined with disruptions in the Strait of Hormuz, a vital route for roughly 20% of global LNG shipments, the development raises the risk of a double shock to supply.

South Korea’s presidential office said no formal decision on the force majeure declaration has been confirmed, but added that it is preparing for possible disruptions in Qatari LNG imports. South Korea gets about 15% of its LNG from Qatar. Officials said efforts to diversify supplies toward non-Middle Eastern exporters such as Australia, Malaysia and the United States should move ahead without delay.

The concern is that a disruption in Qatari supply could trigger a chain reaction in global LNG prices at a time when higher oil prices are already adding to inflationary pressure. LNG accounts for about 20% of South Korea’s total energy use and 28% of its power generation. A sustained rise in LNG prices would push up electricity costs. Emergency measures may be unavoidable, including accelerating the restart of 10 nuclear reactors currently under maintenance and delaying the planned closure of coal-fired power plants.

LNG also makes up roughly half of household energy use in South Korea, including heating and cooking. Lowering indoor heating by 1 degree Celsius can cut energy use by about 7%. Along with conservation measures such as reducing heating and hot water use, the government may need to move quickly on a supplementary budget to ease the burden of higher city gas bills for low-income households and small business owners. LNG is also used to produce urea, a key fertilizer ingredient, raising the possibility that higher gas prices could spill over into fertilizer and food costs.

Some projections suggest it could take three to five years for Qatar to fully restore damaged LNG production and export facilities. Policymakers may need to prepare for a prolonged “Qatar zero” scenario, in which supplies remain severely constrained, and develop broader medium- to long-term energy strategies.